By Kymberly Martin
NZ swap yields rebounded a further 4-9bps yesterday. 2-year swap yields closed at 2.57%. The market has eased off its expectations for rate cuts in the year ahead. Around 27bps of cuts are now priced by mid next year.
The swap curve has continued to steepen as long-end yields have bounced from their lows, assisted by moves in US long yields. The NZ 2s-10s swap curve is now back at 111bps, approaching the 115bps level we would begin to take profits on a steepening position.
Yesterday’s bond tender saw an average 5x bid-to-cover ratio. Greater demand was seen for the NZGB 15s than the NZGB 23s. The bond curve has also steepened notably in recent days.
The DMO is expected to issue its new inflation-linked bonds very soon that are expected to have a 2025 maturity. Anticipation of this may be holding back demand for traditional bonds at the long-end of the curve.
Overnight, US 10-year bond yields traded around the 1.82% level. Yields were underpinned by a positive surprise on the US Philadelphia Fed survey.
As US 10-year bond prices now approach support levels it will take further positive US data surprises to push yields to higher levels. Support is seen if yields get above 1.85%. The next level beyond here is 2.0%.
In its overnight auction, Spain managed to sell slightly more bonds than anticipated. Spanish 10-year spreads to German equivalents have fallen a further 12bps to 371bps. This is the lowest level since early April. The ECB’s OMT program will target the short-end of sovereign bond curves. Still, anticipation of ECB support at the short-end is helping bring down Spanish yields across the curve.
Tonight, the market will look to see if US existing home sales data can corroborate the strength shown in Wednesday’s US housing starts data. However, it looks more difficult for US long yields to make gains from here, given the sharp 20bps move seen in the past week.
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1 Comments
The DMO is expected to issue its new inflation-linked bonds very soon that are expected to have a 2025 maturity. Anticipation of this may be holding back demand for traditional bonds at the long-end of the curve.
Which fools will buy these with inflation about to be deflation? - you noted further up the page 27 bps of cuts are priced in the short end. NZers inability to pay the collective liabilities will reinforce an inflation free slow to negative growth outlook - despite the best intentions and spin.
These guys have bagged the money before the citizen gets a hand on it.
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