By Kymberly Martin
NZ swap yields closed up 1-2bps while bond yields closed up 4bps. Overnight, US 10-year yields bobbed sideways around 2.98%.
Yesterday morning’s US Federal Reserve Minutes did not elicit much market reaction. The overall impression was that the Fed will tread cautiously in ‘tapering’ its asset purchase but is increasingly aware of the ‘costs’ of additional purchase.
But it was also concerned to make sure the market did not see a reduction in the pace of asset purchases as leading rapidly to tightening of policy. i.e. rate hikes. Furthermore the pace of asset purchases is not on a pre-set course and remains contingent on the outlook for the labour market and inflation.
NZ 2-year and 5-year swap ended the day at 3.82% and 4.68% respectively.
We continue to see the 5-year point of the curve as ‘expensive’ for paying.
However, with some current and expected Kauri issuance coming through it will provide receiving interest at the mid-curve. This should see the likes of 5-year swap decline relative to points at either end of the curve.
Overnight, the ECB and Bank of England left rates unchanged as expected. The BoE gave little away in its official accompanying statement as it left its cash rate at 0.5% and asset purchase target at £375b. The ECB was a little more vocal. It ratcheted up its ‘forward guidance’ with firmer words regarding its commitment to maintain a highly accommodative monetary stance.
In questioning, President Draghi suggested the ECB would also be willing to use other methods to stimulate the economy. He would not be led on exactly what those might be but said the Bank will consider “all instruments that are allowed by treaty”. It seems the ECB’s work is not yet done.
Overnight, US benchmark 10-year yields dabbled sideways around 2.98%, yesterday’s Fed Minutes being insufficient to prompt an assault on the crucial 3.0% level.
Tonight, all eyes will be on the release of the US payrolls report. It would likely take a significant upside surprise to convincingly breach the 3.0% level on US 10-year yields.
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