By Kymberly Martin
NZ swaps and bonds closed up 3-5bps across the curve yesterday.
2-year swap has returned to sit around 2.90%. We continue to target 3.40% for 2-year swap by year-end.
By then the market should be moving to price hikes in the OCR that we see from March 2014. The market now prices around a 50% chance of a 25bps hike by that time.
NZ bond yields rose around 4bps across the curve yesterday, rebounding from close to their lows of the past nine months. Supply issues appear to be a key issue for the bond market at present.
The syndication of $2b of the new NZGB 2020 bond is scheduled for April. By concentrating a significant of issuance at this one point it raises the possibility of tight supply-demand dynamics thereafter, as issuance of other nominal bonds is curtailed.
Today, the DMO auctions $200m of inflation-indexed bonds.
There was a more subdued tone in markets overnight. As equities declined, ‘safe haven’ US and German bonds rallied.
The yield on US 10-year bonds, at 1.80%, is at the lowest level since the beginning of the year.
The decline in offshore long yields overnight implies flattening pressure on the NZ curve today.
There are no domestic data today. However it will be a busy day for central banks globally, with the Bank of Japan, BoE and ECB all announcing rates.
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