By Kymberly Martin
NZ yields closed little changed yesterday. Overnight, the biggest news was a surprise rate cut from the ECB.
NZ 2 and 5-year swap closed at 3.51% and 4.40% respectively. The 2-10s curve sits at 146bps. We anticipate a much flatter curve next year (toward 70bps) as OCR hikes are reflected more in short than long-end yields.
Historic relationships suggest a flatter curve should also be associated with wider swap-bond spreads. For now, 10-year swap spreads remain stubbornly at 30bps. They have traded a very tight range around this level for the past two months. We anticipate a widening into the year ahead (within a 25-55bps range).
After the ECB rate cut German benchmark 10-year yields fell from 1.74% to sit around 1.68% this morning. Peripheral European spreads to German bonds narrowed as peripheral yields fell more sharply following the ECB announcement.
US benchmark 10-year yields meanwhile showed a bit of volatility, but within a fairly tight 2.60%-2.64% range.
Today, NZ crown accounts will be issued. These are unlikely to be market moving but should reaffirm the improving trend in the fiscal accounts. The RBA will also issue its Monetary Policy Statement today.
Tonight, it will be all about US payrolls. The payrolls release for October will be closely watched, although taken with a pinch of salt due to the US government shutdown during that period. A stronger-than-expected outcome would likely push US 10-year yields higher (within the 2.50-3.00% range we see for the year ahead).
Tonight, the University of Michigan consumer confidence survey will be released and a number of US Fed members are scheduled to speak.
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