By Kymberly Martin
NZ yields closed down a further 2-5bps yesterday. Overnight, US benchmark 10-year yields pushed up to sit above 2.60%.
NZ swaps kicked off the week where we left on Friday. There continues to be decent receive side interest in the long-end of the curve.
10-year swap led the curve lower in yield, trading down to 4.94%. It is now 16bps off the highs post the NZ Q3 CPI release last week.
We believe the push lower has been exacerbated by sporadic liquidity. NZ 2 and 5-year swap closed at 3.52% and 4.41% respectively.
For a while we have maintained the view that 5-year is the ‘expensive’ part of the swap curve. However, a dip in 5-year swap below 4.30% would see hedging ‘value’ start to open up based on our OCR expectations. i.e. a first 25bps in March next year, with 200bps of hikes taking the OCR to 4.50% by mid-2015.
NZ bonds appeared to be bid from the start of the day with yields closing down 2-5bps across the curve. The yields on NZ 10-year bonds closed at 4.66%. This is still a 67bps spread to AU equivalents and 216bps spread to US counterparts.
This Thursday’s bond tender will be interesting. With US fiscal uncertainties out of the way for now, this event may attract better demand compared to lacklustre interest at recent auctions.
Overnight, US benchmark 10-year bond yields pushed up from 2.58% to sit above 2.60%, assisted by solid US existing home sales data. This helps quell some of the fears that recent rises in US mortgage rates will choke off the housing recovery.
Today there is nothing scheduled on the domestic data agenda. Tonight, all eyes will be on the very long anticipated September US payrolls report. Consensus looks for a +180K outcome. A disappointing outcome could see US 10-year yields move back toward the bottom of the 2.50%-3.00% range we see for the year ahead.
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