While equities provided positive returns and credit spreads narrowed, bonds were fairly range-bound; NZ swaps down on receiving pressure

By Kymberly Martin

NZ swaps closed down a further 2-3bps across the curve yesterday. Overnight US 10-year yields traded a steady path between 2.72% and 2.75%.

In a fairly quiet domestic market the main news is the recent renewed vigour in the bond issuance space.

This week Asian Development Bank is looking to print at least $200m of 5-year bonds. There has also been a pricing announcement from Sky TV. This recent, and ongoing, flurry of issuance is helping apply downward pressure (receiving) on the mid part of the NZ curve. NZ 5-year swap closed at 4.50% and remains more than 25bps below its early January highs.

NZ 10-year bonds closed at 4.57% yesterday. The next test for NZGBs will be Thursday’s DMO auction of nominal bonds, the first since December. This will break the supply drought. But we suspect the issuance may be concentrated on the 2020 maturity which is not particularly in favour at present.

Overnight, while equities provided positive returns and credit spreads narrowed, bonds were fairly range-bound. US and German 10-year yields traded ranges of 2.72-2.75% and 1.66-1.68% respectively.

Today, the RBNZ’s Q1 survey of 2-year-ahead inflation expectations will be released. The previous reading consolidated at 2.3%, off its earlier lows close to 2.0%. The RBNZ will not want to see expectations drifting further from its mandated inflation target (2.0%).

Tonight, the final reading of Q4 German GDP will be released, along with US consumer confidence, house prices and Richmond Fed manufacturing index.