By Kymberly Martin
NZ swaps pushed higher across the curve yesterday in response to the ‘no move’ from the RBA the previous day.
US 10-year yields trade at 1.90% this morning.
NZ swaps pushed higher from the outset, following the previous afternoon’s moves in AU rates.
However, NZ swaps declined into the close from intra-day highs. The short to mid part of the swap curve remains very flat with 2-year at 3.49% and 5-year at 3.55%.
The upfront cost of mid-curve hedging remains close to its lowest level since late 2008 as 5-year now trades 8bps below the floating 90-day bank bill rate.
Yesterday’s LGFA tender saw mixed results. There was solid demand for the 2017, 2020 and 2023 maturities, with 3-4x bid to cover ratios. However, there was less enthusiasm for the 2027 maturity, with a 2.2x bid to cover ratio and a fairly wide, 8 bps, range of successful bids.
US 10-year yield rose steadily in the early hours of this morning to trade above 1.92%. However, the delivery of the Fed’s March Minutes then prompted a spurt of volatility, as the market tried to tease out any nuance.
Overall, we are left with the impression that any meeting after April will be ‘live’ for a rate hike and we will simply have to watch the data. Fed funds futures now price a 0.37% FFR by year-end. US 2-year bond yields sit a fraction higher post-Minutes, just above 0.53%.
The Bank of England meets tonight, and is widely expected to ‘do nothing’. It is one of a number of global central banks who are expected to be on prolonged hold. The market now prices less than a 50% chance that the BoE’s cash rate will be 25 bps higher by mid next year.
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