By Kymberly Martin
NZ swap yields closed up 1-5bps on Friday. Bond yields closed up 4-9bps. US 10-year yields closed at 1.90%.
Over the course of last week NZ 2-year swaps rose 5bps. The market is still only pricing around a 20% chance of a RBNZ rate hike in the year ahead.
However, 10-year yields have risen 16bps, following offshore moves. This took the 2-10s curve to 105bps by week-end.
NZ 10-year bond yields closed up 9bps on Friday, taking the move on the week to 18bps. We think this is the start of a notable sell-off in NZ long-bonds from over-valued territory.
The move will likely extend today given the sell-off in US long bonds seen on Friday night.
This Thursday’s DMO auction of NZ$120m of bonds will be an interesting barometer of current appetite for NZ bonds. It will be the first auction of nominal bonds for three weeks.
On Friday night, US 10-year bonds extended their recent sell-off, assisted by comments from US Fed Chairman Bernanke. US 10-year yields closed the week at 1.90%, their highest level since late March.
It is a busy week ahead domestically and offshore. The domestic highlight will be Thursday’s Budget and tomorrow’s retail sales data. We do not expect any significant changes to the bond program for 2013/2014 which is currently planned at NZ$10b of issuance.
Today, NZ curve steepening should continue following Friday night’s offshore moves. All eyes will also be on Chinese data releases and AU NAB business confidence schedule for this afternoon.
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