By Kymberly Martin
NZ yields closed a fraction lower yesterday. Overnight, trading in US bonds closed early in anticipation of Hurricane Sandy.
NZ swap yields appear to be consolidating mid-range after their recent, rapid, post-OCR meeting rise. The market continues to price around 60% chance of an RBNZ rate cut in the year ahead. The 2s-10s curve remains around 111bps.
Overnight, there was little to report on the data front, though softness in equity markets was offset by a bid tone for ‘safe haven’ bonds.
It is difficult to pinpoint if the ‘flight to safety’ was instigated by the uncertainty of Hurricane Sandy in the US or simply a return of simmering European concerns.
The US bond market terminated trading early, at midday New York time, and the regulators have recommended the market remains closed today. US 10-year yields closed down 3bps at 1.72%.
Politics dominated in Europe. Recently sentenced Italian ex-premier Berlusconi has threatened his Freedom Party will withdraw support for Monti’s Government. In Spain, P.M. Rajoy once again deflected expectations of an imminent application for aid saying he will do so as, and when “it is in the interests of Spaniards”.
In recent days, Spanish and Italian spreads to German bunds have been stealthily moving higher. 10-year spreads are now nearly 50bps off their mid-October lows.
Today is empty of NZ data releases. Across the Tasman it is worth keeping an eye out for RBA Lowe’s speech to a Fixed Income conference in Sydney.
With US markets likely closed tonight, it will be all eyes on European headlines. Italy returns to markets to sell bonds. This should provide a litmus test of the market's current appetite for European sovereign risk.
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