By Kymberly Martin
There was a harsh fall in NZ swap yields yesterday, following the rate cut and accommodative stance from the RBA.
Swaps closed down 4-10bps with a continued flattening bias to the curve.
Receivers were out in full force on the day with very few bids to absorb the flow. Mortgage book and corporate paying was not being seen.
However, with 2-year yields moving toward the bottom of their ranges payers were beginning to pop up their heads on the way down. 2-year is now at 2.58% at levels we would look to begin paying.
The market is close to fully pricing a 25bps RBNZ cut in the year ahead.
We still believe the RBNZ’s threshold for cutting is high, and moves by the RBA should not be extrapolated to this side of the Tasman.
The 2s-10s swap curve is back at its lows around 94bps. We would position for re-steepening.
We think the curve is now flat enough to encourage paying by corporates or local councils at the long end.
We also believe the developing stabilisation in US long yields is consistent with the NZ flattening running out of momentum.
Overnight, US 10-year bond yields continued to consolidate just above the 1.60% level.
Yesterday’s Local Government Funding Authority (LGFA) auction again attracted solid demand. The $275m of bonds offered attracted a 3.3x bid-to-cover ratio.
The DMO has announced its tender for today of $100m of 19s and $150m of 23s. Otherwise there are no NZ data releases today.
Tonight, the Bank of England and ECB announce rates. Neither is expected to change rates that are already at minimal levels (0.50% and 0.75% respectively).
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