Today's NZGB tender a highlight, may be affected by strong corporate issuance recently; big UST auction

By Kymberly Martin

NZ swaps closed down 1-2bps with a flattening of the curve. Overnight US 10-year yields traded between 2.68% and 2.72%.

Although the moves in swaps were not huge yesterday there was some activity from the ‘real economy’ (mortgage, corporate paying) and from investors.

Overall the 2-10s swap curve flattened a little to 122bps, back toward its early February lows.

The NZ DMO announced the details of its tender for today. As expected it is offering $200m of NZGB 2020 bonds.

Although the market has not seen DMO issuance since last December, the recent flurry of Kauri SSA and LGFA issuance appears to be reducing demand for NZGBs.

Overnight, US 10-year year yields traded to intra-night lows around 2.68% as the US auctioned $13 bln of securities. However, yields bounced back to 2.70% after the release of stronger-than-expected US home sales data (9.6%m/m vs. -3.4% expected).

Today the RBNZ will release its January data on LVRs. These will surely affirm another below-target (10%) result.

This suggests recently implemented regulations are being successful in reigning in high loan-to-value lending, even if not having a significant impact on house prices.

Across the Tasman the key data release today will be private capital expenditure for Q4. Much focus will be on the expectations numbers, as the market looks hopefully for non-mining to fill the gap after the peak in mining investment.

At present the market prices only a small (15%) chance of a further rate cut from the RBA this year. It also sees the AU cash rate 25bps higher by mid next year.