By Kymberly Martin
NZ swaps slipped a little further yesterday. Despite the difficulty in interpreting yesterday’s HLFS, the market responded to the cautious labour market message the data portrayed.
Swap yields closed down 4-5bps across the curve.
The market has pared back its OCR expectations to just a 30% chance of a hike in the year ahead. We continue to expect a 25bps hike in December.
In the near-term however, yields may be set for a more protracted pull-back. There is little data on the horizon domestically likely to surprise to the upside.
In addition, offshore long yields (US) look set for a period of consolidation/pullback. We like receiving swap at current levels given the positive carry and roll.
However, we would see any significant pullback in yield as an opportunity to increase hedging against expected future rate rises.
Yesterday’s inaugural DMO inflation-indexed bond auction attracted no shortage of bidders, with a 6.5x bid-to-cover ratio. Many of the bids were ‘flyers’. But successful bids for the $200m offered, came around market pricing at time, suggesting genuine demand.
Overnight, the ECB left rates unchanged as expected. The Bank of England left its Bank Rate at 0.5% and asset purchases at £375 as expected.
Spain managed to exceed its maximum borrowing target (€4.5b) in auctioning bonds overnight. However, given recent political concerns engulfing the sovereign it had to pay higher yields that at its last auction in January.
Global ‘safe haven’ bonds attracted fairly steady demand overnight, with the yield on US and German bonds slipping. US 10-year yields sit close to 1.94% this morning.
There are no local data releases today.
No chart with that title exists.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.