By Kymberly Martin
NZ swap yields closed down 1-3bps across the curve yesterday. The slightly more sober mood offshore has seen NZ and AU yields slip a little lower in sympathy.
However, 2-year swaps remain in the upper bound of their trading range since June. In recent days we suspect paying activity at the short-end may reflect pre-positioning for, or actual mortgage fixing.
The 2s-10s swap curve closed a little flatter at 108bps. We suspect the mid curve (5-year) is biased to flatten in coming days as some issuance comes to market, including a 5-year Kauri deal.
The DMO has offered $100m of 17s and $100m of 23s at its first auction of the year today. Pent-up demand from the holiday break in issuance may help support the auction.
However, NZGB 23s appear stretched on valuation relative to both AU equivalents and swap.
Overnight, there was relative calm in offshore markets. US 10-year yields continued to consolidate around the 1.82% level.
Data on either side of the Atlantic failed to provide any dramatic surprises. However, the overhanging spectre of the US debt ceiling negotiations is maintaining solid demand for ‘safe haven’ US and German bonds.
Today’s NZ data releases, ANZ job ads and consumer confidence are unlikely to be market moving. More important will be tomorrow’s CPI release.
Inflation is expected to inch back into the RBNZ’s 1-3% target band with a 1.2% reading. Risks however, are to the downside.
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