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Markets bracing for a period of increased volatility; better US data sees a sell-off in US Treasuries and yields rise

Bonds
Markets bracing for a period of increased volatility; better US data sees a sell-off in US Treasuries and yields rise

By Kymberly Martin

On Friday, NZ yields followed offshore moves higher.

On Friday night, US 10-year yields continued their inch higher, to end the week at 2.20%.

Both NZ swap and bond yields closed up 3-8 bps on Friday, reversing the previous day’s moves.

Increased volatility is likely now a feature of markets after a period of historically low volatility across asset classes. NZ 2-year swap closed up 3 bps, at 3.96%, while 10-year closed up 8 bps, at 4.40%.

The resulting steepening has taken the 2-10s curve back up to 44 bps. We do not expect much further flattening in this cycle, in fact seeing the near-term risk of steepening if US Treasury yields bounce.

The yield on NZGB23s ended the week at 3.98%, 5 bps higher, but still only a marginal bounce from their lowest level since last June.

It was quite thin on the data-front on Friday night. US data (housing starts, University of Michigan Confidence) came in marginally on the high-side of expectations. Sentiment rebounded from the previous night’s gloom with a stellar performance from equities and a sell-off in US Treasuries.

US 2-year bonds pushed up from lows of 0.32% to end the week at 0.37%, while 10-year yields ended the week at 2.19%.

Given these moves, mimicked by Aussie bond futures, we expect to see some downward pressure on NZ yields at the start of the week.

 
 
 
 
 
 
 
 

Daily swap rates

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Opening daily rate
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
Opening daily rate
Source: NZFMA
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Source: NZFMA

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1 Comments

It was quite thin on the data-front on Friday night. US data (housing starts, University of Michigan Confidence) came in marginally on the high-side of expectations. Sentiment rebounded from the previous night’s gloom with a stellar performance from equities and a sell-off in US Treasuries.

 

It was not credible to expect market markers to allow speculators etc, who instituted option hedges in the heat of Wednesday's dislocation, to collect post expiration in the money proceeds, even though other measures of well-being were not so bouyant.

 

According to the Fed's triennial Survey of Consumer Finances, the top 10% of U.S. families are doing just fine, and those in the bottom fifth are essentially being kept afloat by transfer payments; but the inflation-adjusted median family income has shrunk by one-eighth since 2004. Quite simply, middle-class incomes are being gutted. Read more

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