NZ swap curve flattens further, LGFA tender more solid than expected, reduced demand for UST 5yr auction

By Kymberly Martin

In relatively quiet markets, the NZ swap curve flattened.

Early this morning, US 10-year yields pushed up above 2.55%.

The short-end of the NZ swap curve attracted payers which enable 2-year to close up 1 bps, at 4.05%, despite longer-dated swaps declining. As a consequence the 2-10s swaps curve has flattened to 56 bps.

Yesterday afternoon’s LGFA tender of 2020, 2021 and 2023 bonds was more solid than anticipated. The auction attracted an average 3x bid-to-cover ratio.

The widest range of successful bids was seen in the longer-dated bond, but even this was tighter than recent events. The LGFA 2023s cleared at a weighted average of 4.97%, for a spread to NZGBs in the late 70s. There are two more auctions scheduled before the end of the year.

Overnight, while equities enjoyed a rebound, US Treasuries were largely range-bound. In the early hours of this morning, US Treasuries sold off slightly after reduced demand at a five-year note auction. It attracted a 2.6x bid-to-cover ratio, the lowest this year. US 10-year yields pushed up from intra-night lows around 2.53% to sit above 2.55% this morning.

Today, in the absence of scheduled domestic events look out for remarks from RBA Governor Stevens at the Melbourne Economic Forum.

The market currently prices the RBA will be ‘on hold’ until 2016.