By Kymberly Martin
NZ swap and bond yields closed down 1-4 bps yesterday.
Overnight, US 10-year yields slipped from 2.56% toward 2.53%.
It was a relatively quiet day in the NZ market yesterday, in the absence of domestic data. NZ 2 and 10-year swap closed down 1 and 4 bps respectively, resulting in modest flattening of the curve.
The 2-10s curve now sits at 60 bps. The 2-year swap sits at 4.03%. We see little on the data-front, in coming weeks, to prompt the NZ short-end out of its current tight range.
Meanwhile, NZ bond yields declined 3-4 bps yesterday, further widening swap-bond spreads.
The yield on NZGB23s now sits at 4.20%. NZGBs could come under some switching pressure, given the fairly chunky LGFA tender scheduled for today. A total of $NZ270m of bonds is on offer across three maturities 2020, 2021 and 2023.
We expect the market may take some effort to digest the $NZ140m of LGFA2023s, resulting in a fairly wide (7-10 bps) successful bid range. The shorter-dated bonds may be tighter.
Overnight, Eurozone and US September PMI data came in not far from expectation. Each remained clearly in expansion (above 50) despite the French sub-components remaining in contraction. German 10-year yields were tightly range-bound, trading at 1.01% this morning. US equivalents drifted down from 2.56% toward 2.53%. We see a 2.45-2.85% range through to year-end with a year-end target of 2.75%.
Today NZ trade balance and LVR data will be released. Tonight’s focus will be the German IFO survey of business and US new home sales.
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