By Kymberly Martin
NZ yields opened down mimicking the post-payrolls move seen offshore. Yields closed down 6-9bps across swap and bond curves. Overnight US 10-year yields fell to 2.48%.
After opening down 3bps in sympathy with the moves seen offshore after the release of US payrolls, NZ yields continued to decline for most of the day.
NZ swaps closed down 6-7bps across the entire curve. A further push lower in 5-year swap below 4.30% (currently 4.36%) would start to re-open hedging ‘value’ in this part of the curve, in our view. However, we suspect there is plenty of paying demand waiting in the wings for just such a pullback, so do not expect the current dip in yields to be prolonged or deep.
Across the Tasman, AU Q3 CPI surprised on the high-side (2.2%y/y vs. 1.8% expected). That briefly saw AU yields surge higher. However, by the close of day AU yields had moved back to, or beyond their opening levels.
There was some narrowing of NZ-AU short-end spreads. NZ-AU 2-year swap spreads narrowed from 64 to 60bps. Ultimately, next year as RBNZ hikes get underway we expect this spread to peak above 120bps.
Overnight, in the absence of further US data releases, US 10-year yields continued their drift lower to sit around 2.48% this morning. After the strong rally in USTs since early September, the level that the market will now be watching for resistance is just above 2.40% on yields.
Today’s domestic focus will be the NZ trade balance and this afternoon’s DMO tender. After fairly muted demand in recent events we expect better demand at this week’s auction.
The release of the HSBC China PMI for October may also help shape market sentiment. Tonight Eurozone PMI data for October will be released.
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