By Kymberly Martin
NZ yields closed down 4-9bps on low volume. Overnight, US markets remained closed.
The NZ swap curve flattened noticeably yesterday. Long-end yields declined with the ‘flight to safety’ as uncertainty prevailed in the US. The 2s-10s curve has flattened to 106bps, now some 10bps off recent highs.
Whether the NZ curve revisits its recent lows just below 95bps will be highly influenced by moves in US long yields. For now, the US bond market remains closed, but is expected to re-open this evening.
NZ bonds also closed down 4-7bps yesterday. NZ 10-year yields remain relatively depressed relative to their AU and US counterparts which should limit any further fall in yields.
At 34bps and 175bps respectively, NZ-AU and NZ-US 10-year spreads are both close to the bottom of ranges.
Overnight, Italy met its maximum target when selling €7b of 5 and 10-year bonds. Italian-German 10-year bonds spreads narrowed slightly as Italian bond yields declined and German yields rose from 1.44% to 1.48%.
Today’s NZ data releases (building consents and household credit) are unlikely to be market movers.
The market currently prices a 75% chance of a 25bps RBNZ rate cut by mid next year.
Today the market will likely remain fixated on the fallout of the US storms on the economy and political campaign.
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