By Kymberly Martin
Yields closed down 2-4bps across the bond and swap curve yesterday. The 2s-10s swap curve has levelled out at 118bps.
Yesterday’s LGFA auction once again attracted strong interest with a 3.3x bid-to-cover ratio. The successful range for the $75m of bonds was quite wide at 7bps. The LGFA 19s continue to trade around 90bps over NZGB equivalents. The LGFA now has more than $1b issued.
Yesterday, AU bonds rallied and overnight AU futures continued this trend. NZ-AU 10-year bond spreads have widened out to 38bps. This should help support some improved demand at today’s NZ DMO auction, following softness in recent weeks.
Today’s auction offers $100m of NZGB15s and $150m of NZGB23s. Relatively tight swap-bond spreads should also help underpin demand for NZ bonds.
Overnight, US 10-year bond yields eased lower. This move was exacerbated by the release of US FOMC minutes early this morning. The market jumped onto comments that “many members judged that additional monetary accommodation would likely be warranted fairly soon”.
US data releases in recent weeks since the minutes’ release have shown some signs of recovery. Still, the market is judging the comments to imply QEIII is more likely.
US 10-year bond yields slipped from yesterday’s highs of 1.86% to 1.71% currently. Consequently NZ-US 10-year bonds spreads have widened to 205bps. This should also support demand for NZ bonds at today’s DMO auction.
There are no NZ data releases today. The fall in US 10-year bonds yields overnight should apply some flattening pressure to the NZ curve today.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.