By Kymberly Martin
NZ yields closed 1-2 bps higher yesterday.
Overnight, US 10-year yields pushed up from 2.33% to 2.35%
Yesterday’s NZ Q3 labour market report showed continued improvement, as expected, as the unemployment rate declined further, to 5.4%.
Although hourly earnings were solid, there were not sufficient signs of wage pressures to suggest any urgent response from the RBNZ. Consequently, the market’s response was relatively muted.
NZ 2-year swap closed up 1bps, at 3.89%. The 2-10s curve steepened slightly to 53 bps.
During the afternoon the LGFA (Local Government Funding Agency) held its latest bond tender. Demand was fairly solid, given general lack of bond supply in the NZ market, and limited underlying domestic rate risk at present. The average bid-to-cover ratio was 2.9x.
There were 5 bps ranges in the successful bids for the longer-dated bonds. The LGFA now has over NZ$4.4 bln of bonds on issue. The growing size of the market should encourage further offshore investor participation.
In the backdrop of positive equity returns overnight, US Treasury yields pushed a little higher.
The US ADP employment report slightly beat expectation at 230k, keeping alive market hopes of a solid US non-farm payrolls number on Friday (consensus, 235k).
US 10-year yields sit at 2.35% this morning.
Across the Tasman, the focus for rates markets today will be the release of the AU employment report, though this has been a bit of a lottery of late.
The market currently prices around a 30% chance the RBA will cut rates by 2H next year. We believe it is more likely it remains on hold, at 2.5% for most of next year.
Tonight the BoE and ECB are due to meet.
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