Last auction of government bonds for 2012 expected to attract solid demand

By Kymberly Martin

It was another fairly quiet day in NZ swap markets as we head into the biggest local data releases of the week today, Q3 GDP and the ANZ business survey.

A result close to our expectation should keep yields well supported into the end of the week.

Given swap yields are near the top of ranges, any disappointment in the data could see yields pull back sharply as expectations of rate cuts were revised up.

Currently the market prices around a 30% chance of a 25bps RBNZ rate cut by mid next year.

Today’s DMO auction offers $100m of NZGB17s and $150m of NZGB23s. This will be the last auction until tenders resume in mid-January, when weekly offerings will fall to a total of $200m/week.

Therefore expect the auction to attract solid demand.

Overnight, US 10-year bond yields consolidated around the 1.80% level. Progress in the US fiscal cliff negotiations appear to have stalled despite President Obama saying “I’d like to get it done before Christmas”.

Obama plans to veto an alternative tax proposal the Republicans intend to put to a House vote.   

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