Offshore yields driving NZ market in absence of data; US treasury yield down 5 bps and German equivalents also lower; Greek bond yields falling ahead of election

By Kymberly Martin

NZ swap and bonds yields declined, following Friday night’s fall in offshore yields.

Overnight, US 10-year yields declined from 1.97% to 1.92%.

In the absence of domestic data releases yesterday, the main driver of the NZ market was the slide in offshore yields, post-US payrolls, on Friday night.

NZ 2-year swap remains quite sticky, trading down 2bps to 3.81%. Meanwhile 10-year traded down 5bps to 3.98%.

The yield on NZGB 2027s declined 5bps, back toward its lows, at 3.64%. The NZ bond curve remains remarkably flat with just 15bps between the yield on NZGB 2017s and NZGB 2027s.

The next nominal bond tender is not scheduled for a month, which should help keen the supply-demand equation pretty tight.

We expect NZGBs would outperform if there were to be any sell-off in US Treasuries.

While the WTI oil price fell a further 4% overnight, US yields drifted lower in the early hours of this morning. From above 1.97%, US 10-year yields now trade around 1.92%.

Similarly, German equivalents fell from 0.51% to 0.48%. Meanwhile the yield on Greek 10-year bonds continues to inch down after its early-month spike toward 11%. Yields now sit at 9.5% in the run-up to the 25 Jan national election.

It is another relatively quiet day on the data agenda today. However, given the decline in yields overnight, we expect downward pressure to remain on NZ yields.