By Kymberly Martin
NZ swaps closed up 2bps across the curve.
Bond yields rose 4-7bps.
Overnight, US 10-year yields popped up to 2.80%.
NZ swaps pushed higher in conjunction with rising AU yields.
We continue to see mortgage paying at the front end of the curve, pushing 2-year swap as high as 4.09%, close to mid-March highs.
Offshore investors seem happy to still be receivers at this level, to offset the domestic flow. Ultimately however, we see 2-year pushing higher approaching the April 24 RBNZ meeting.
Furthermore, we see 2-year swap at 4.80% at year-end.
NZ bond yields rose yesterday in sympathy with rising AU equivalents, and ahead of the LGFA tender. The NZ 10-year bond yield now sits at 4.62%, toward the upper end of the tight range it has traded for the past ten weeks.
The LGFA tendered its new line of 2023 bonds along with some 2019 and 2021 bonds. The tender was pretty soft overall. Although the average bid-to-cover ratio was a respectable 2.5x, there were some notable tails in the bids. The 2023 bond was sold at an average yield of 5.48%, which equated to 47bps over swap. There was an 8bps range of bids. With time, we suspect offshore investor interest in the bond will develop, helping to narrow the spread to NZGBs.
Overnight, US 10-year yields pushed higher after the release of the US ADP employment report. Although slightly below expectation (191k vs. 195k) it was a step up from the previous month (178k) which was itself revised higher. The market is likely extrapolating the result to a solid payrolls report on Friday. 10-year yields climbed from 2.76% to 2.80%, the top of their ten-week range.
Today, there is nothing scheduled on the domestic agenda. However, expect yields to open higher at the long-end, on the back of overnight moves.
Tonight the ECB announces interest rates. Although consensus does not expect the Bank to adjust its rate settings it is very much a ‘live’ meeting, as the ECB attempts to address disinflationary pressures in the economy.
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