By Kymberly Martin
It was a remarkably uneventful day in NZ markets despite the earlier moves seen offshore. NZ yields closed little changed in both swap and bond markets.
We see short-end yields about mid-range at present. They continue to price the OCR will be around 5bps lower in 12 months’ time. The 2s-10s curve remains at the 113bps level.
Overnight, US data releases were mixed. CPI was contained, the Empire Manufacturing index for August was weak (-5.85 vs. 7.00 expected).
Capacity utilization ticked up from 78.9% to 79.3%. The NABH housing index moved up from 35 to 37 (35 expected), the highest level since mid 2006.
In light of these last releases there appeared to be no stopping the momentum in the recent US Treasuries sell-off. 10-year yields are currently sitting at the key support level of 1.80%.
Failure to find sustained buying interest at this level would open the way for yields to return to 2.0%.
German ‘safe haven’ bonds have also come under selling pressure. 10-year yields are now approaching key support levels at 1.60%. These moves should add further steepening to the NZ curve today.
The NZ DMO has announced the auction for today of $100m of NZGB15s and $150m of NZGB23s. This is in line with its current policy of offering regular $250m weekly issues.
Given the sell-off seen offshore it is likely demand today may continue the soft trend of the past few weeks.
Next up on the US data front tonight will be housing starts and the Philadelphia Fed survey. If the more upbeat tone in data continues, we could see US 10-year yields continue their march higher.
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