By Kymberly Martin
It was a fairly quiet start to the week in NZ rates markets. Yields closed up 1-4bps across swap and bond curves.
Overnight, US 10-year yields pushed up to 2.66%.
NZ 2 and 5-year swap rates closed up at 3.97% and 4.43% respectively.
We continue to see good hedging value in 2-4-year swap rates at current levels. We continue to see the OCR at 5.0% within the next two years, even if the elevated NZ TWI were to slow the RBNZ’s near-term pace of hikes. On the immediate horizon, we expect the RBNZ to raise another 25bps at its June meeting.
The LGFA (Local Government Funding Agency) yesterday announced a tender for this Wednesday.
On offer are NZ$10m of 2017s, NZ$10m of 2019s, NZ$25m of 2021s and NZ$155 of 2023s. Combined with NZ$200m of NZGBs on offer on Friday, there are now $400m of NZ bonds on offer this week.
This should help to ease some of the recent demand-supply bottleneck.
This, along with some rebound in longer-dated US yields should allow NZ longer-dated NZGB yields to find a base.
At present the yield on NZGB23s sits at 4.29%.
In a data-light evening, US 10-year yields pushed off their recent bottom-of-range lows, to sit at 2.66% currently. Yields now appear comfortably back in their ranges since late January.
However, we would caution that the speculative community is already short US 10-year Treasuries, making them still susceptible to a rally if data disappoints.
Today, the AU Federal Budget will be released.
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