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NZ bond yields fall across the board as 'flight to safety' continues

Bonds
NZ bond yields fall across the board as 'flight to safety' continues

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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2 Comments

I'd say the market is still missing what's going on in Europe (the imminent explosion of the Euro and the potentially resulting war), the Chinese hard landing, and the US fiscal cliff, among other things.

The NZ OCR will be going down next year to rates similar to the UK, USA and Europe...

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Agree StanGoodvibes the risks of one of the senerio's occuring are becoming every closer.  We have also had a very good run in the stock markets around the world for the past 5 years so risk of a good size correction is also becoming closer and time to take some profit taking. There is possiblity of a rate cut next years or rate hold depending on what pans out.  What I do believe is that NZ will raise rates well before the USA raises which is targeted for 2015.  I don't thinks that NZ will be able to do too much on rate cuts if NZ get down graded later next year and borrowing costs go up.

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