By Kymberly Martin
NZ swap yields closed down 2bps across the curve yesterday.
Overnight, US 10-year yields subsided to trade near 2.95% this morning.
NZ 2 and 5-year swap closed at 3.85% and 4.72% respectively, slightly below recent peaks.
On the basis of our central forecast that the OCR will rise from March this year to a 4.50% peak in late 2015, current 2-year swap is close to ‘fair value’.
By contrast, 5-year swap looks a little expensive for paying. However, we would caution that we see upside risk to our forecast peak in the OCR. A peak above 5.0% is highly plausible, even if not until 2016.
Overnight, US benchmark 10-year bond yields once again attempted to break above 3%, but failed. A weaker than expected ISM Non-manufacturing release (53.0 vs. 54.7 expected) assisted the downward drift in yields to 2.95% currently.
Meanwhile, all remains fairly quiet on the European sovereign front. Peripheral European bond spreads to German equivalents have open the year at their lowest level since mid-2011. Italian-German and Spanish-German 10-year spreads sit close to 200bps, well down from their peak levels close to 600bps in mid-2012.
Today, there are no domestic data releases scheduled.
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