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Draghi's plan doesn't impress markets; NZ OCR hikes off agenda until "some stabilisation in dairy prices"

Bonds
Draghi's plan doesn't impress markets; NZ OCR hikes off agenda until "some stabilisation in dairy prices"

By Kymberly Martin

There was a 5-7 bps decline in NZ swap and bond yields following the previous night’s offshore moves.

Last night, US 10-year yields traded sideways around 2.40%.

NZ swaps declined across the curve yesterday, given the 10 bps move lower in US 10-year yields the night before and the soft GDT dairy auction.

Until we start to see some stabilisation in dairy prices, further OCR hikes will remain off the RBNZ’s agenda. 2 and 5-year swap closed down at 4.05% and 4.33% respectively.

The 2-10s curve has flattened a fraction further, to 47 bps. The yield on NZGB23s also slumped 6bps, to 4.07%, back at its early September lows.

Overnight the main event was the ECB meeting. President Draghi announced further details of its bond buying programmes. Covered bond purchases will start later this month while ABS buying will begin in Q4. The programmes will last for two years.

With caveats, they will even accept Greek and Cypriot assets.

But after the low uptake of the first TLTRO last month, the Bank seemed less committed to getting its balance sheet back up to its 2012 level. He simply stated the ECB would “steer” its balance sheet back toward this level.

He emphasised the ECB’s main mandate was targeting medium-term inflation, and that balance sheet expansion was only a means to this end.

German 10-year yields initially rose above 0.93%, but subsequently fell back, to close at 0.90%. Eurozone equities appeared underwhelmed by the announcement, falling sharply.

Today, there are no domestic data scheduled for release. The market will be on the edge of its seat, waiting for tonight’s US payrolls report.

 
 
 
 
 
 
 
 

Daily swap rates

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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA

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