By Kymberly Martin
NZ yields closed down 2-4bps across the curve yesterday. Overnight, US 10-year yields traded a relatively tight range between 2.70-2.73%.
NZ 2-year yields closed at 3.53%, within the 3.40-3.60% range that appears to be holding for now. We continue to see 2-year swap at 3.60% at year-end and as high as 4.60% at the end of 2014.
The 2-10s swap curve closed 2bps flatter at 149bps. The curve also appears stuck in a range for now, between 140 and 160bps, with moves at the long-end very much influenced by the US equivalents.
Ultimately we see the curve flattening toward 70bps next year as OCR hikes get underway.
Yesterday’s DMO tender of $200m of NZGB2020 bonds was well supported.
The bid-to-cover ratio was on the light side (2.8x) but the levels were pretty good.
The bonds were sold at yields at, or slightly below, where they traded in the market pre-tender.
We continue to see a 2.50-3.00% range for US 10-year yields in the year ahead.
An announcement of QE tapering, if combined with a credible pushing back of the Fed’s proposed starting point for rate hikes, would see yields more likely to test the lower than upper end of this range.
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