Aussie capex weakness and chunky long-end flow drives narrowing of NZ-AU spreads markedly

By Kymberly Martin

NZ swaps closed down and the curve a lot flatter yesterday.

Overnight, US 10-year yields pushed off intra-night lows of 1.93% to trade at 1.99% currently.

Yesterday’s downward move at the long-end of the NZ swap curve was quite striking.

It appeared assisted by some chunky long-end flow and by the soft AU Capex data.

As a consequence, NZ 10-year swap closed down 8 bps at 3.74%. The 2-10s swap curve has flattened to 17 bps.

There was also some marked narrowing of NZ-AU long-end spreads. For example, NZ-AU 10-year swap spreads narrowed from 101 bps to 94bps, while NZ-AU 5y5y fwd plunged from 70 bps toward 60 bps.

Overnight, as US core CPI met expectations and US durable goods orders were boosted by aircraft orders, US 10-year yields rebounded from 1.93% to 1.99%.

Meanwhile, German equivalents made new historic lows overnight, below 0.29%, as Greek bond yields continue to rebound.

Today brings the domestic data highlight for the week in the form of the Feb ANZ business confidence survey. Given the markets current inclination to price RBNZ rate cuts, a soft number will likely garner the bigger response.

At present the market prices around a 70% chance of a rate cut in the year ahead.

Tonight’s second reading of US Q4 GDP will likely determine the direction of US yields at week end.