By Kymberly Martin
NZ yields closed a little higher at the short-end but little changed at the long-end.
Overnight, US 10-year yields traded between 2.02% to 2.12%.
NZ yields initially pushed a little higher yesterday morning. However, the release of the HYEFU confirmed relatively limited supply of NZGBs as the government approaches operating surplus. This saw a bid tone return to longer-dated NZGBs.
The DMO’s detailed breakdown of issuance for Q1 shows a total of NZ$600 mln of nominal bonds will be offered for tender in the quarter. However, the next nominal bond auction (NZ$300 mln) is not until 12 February. i.e. almost two months away. This should keep the demand-supply equation tight over the new year period.
Yesterday, yields on NZGB27s closed fairly flat, at 3.87%. Similarly NZ 10-year swap closed little changed at 4.18%. NZ 2-year swap closed up 1bps at 3.81%.
It was a fairly volatile night for US Treasuries. Initially, Treasury yields declined as the market focused on the crisis in Russia, and the inability of the surprise rate hike (to 17%) to stem the collapse in the ruble.
Later, as oil and equity prices rebounded, so too did US yields. From lows below 2.01%, US 10-year yields now trade back at 2.07%. German equivalents made new historic lows below 0.57% before returning to trade at 0.60% currently.
The short-end of the NZ curve should remain firm this morning as the market is somewhat relieved by the solid GDT dairy auction overnight (average prices up 2.4%).
Then it will be all eyes on the US FOMC meeting this evening. We expect it will remove the “considerable time” phrase to delineate the time between the end of QE and the start of rate hikes. The market will be eager to see whether the Fed is willing to look through the disinflationary impact of recent oil price falls and remain on track to hike this year.
We currently expect a mid-year hike while the market is pricing a first hike around Q3.
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