By Kymberly Martin
NZ swaps closed down 3-5 bps yesterday, led by the previous day’s offshore moves.
Overnight, US 10-year yields pushed up from 1.76% to above 1.83%.
In a trading day limited by an Auckland and AU holidays, NZ swaps took their cue from Friday night’s post-ECB moves. They closed lower across the boards.
The 2-year swap closed at 3.62% as the market now prices around a 50% chance of an RBNZ cut in the year ahead.
While the RBNZ may throw cold water on this notion at its Thursday meeting, any rebound in yields would likely prove short-lived.
We still think its likely 2-year swap will ultimately move toward 3.50% before any sustained rebound. NZ 10-year swap closed at 3.74%.
Overnight, in the backdrop of positive returns for Eurozone equities, German 10-year bond yields pushed up from 0.34% to 0.40%. The move was likely helped by a German IFO business survey that saw both current conditions and expectations improving.
The prospect of further monetary easing and an already much lower currency is likely offsetting other lingering concerns for the health of the Eurozone.
US 10-year yields moved up from early evening lows below 1.76% to sit around 1.83% currently.
The moves overnight, mimicked by Aussie bond futures, will likely see upward and steepening pressure on the NZ curve today, in the absence of domestic data releases.
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