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NZGB bond yields shift lower. LGFA offer getting wider recognition, yields falling. Markets expecting longer 'hold' by RBNZ

Bonds
NZGB bond yields shift lower. LGFA offer getting wider recognition, yields falling. Markets expecting longer 'hold' by RBNZ

By Kymberly Martin

NZ swaps closed down and the curve notably flatter yesterday.

Overnight, US 10-year yields traded a relatively tight range, either side of 2.13%.

Yesterday’s NZ moves were almost entirely attributable to the previous night’s downward shift in yields offshore.

Unsurprisingly, the long-end of the NZ curve moved the most. 10-year swap closed down 6 bps at 3.86%, while 2-year was a bit steadier, closing at 3.56%.

Moves in NZGBs were also notable as bond yields closed down 7-8 bps in a fairly parallel move across the curve. The yield on NZGB 2023s now lies back at 3.37%.

The LGFA tender attracted strong demand for NZ$100 mln of the new LGFA 2027 bond. The bid to cover ratio was a healthy 3.4x, with the av. successful yield of 4.18% (swap +28 bps). This demonstrates (i) continued global search for yield (ii) increased recognition of the issuer that now has a solid three year track record.

Overnight, in the absence of key data or newsflow in the US, US 10-year yields traded between 2.10 and 2.16%, about mid-range at present.

Meanwhile German equivalents have touched new historic lows below 0.20%. However, ECB’s Nowotny commented overnight that he thought if the ECB’s QE programme was successful it would raise inflation expectations, and be reflected in higher yields.

Today, is all about the RBNZ meeting domestically.

We expect the Bank to indicate it remains on prolonged ‘hold’ but to notably flatten it projected 90-day bank bill track. This may not come as any surprise to the market however, which already prices around an 85% chance of an RBNZ cut in the year ahead.

This afternoon’s AU employment report will be critical for informing market pricing for RBA activity. The market currently prices a further 50 bps of rate cuts in the year ahead.

 

Daily swap rates

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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA

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