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Markets price in RBNZ cuts that are unlikely to happen. Large NZGB bond due to mature next week

Bonds
Markets price in RBNZ cuts that are unlikely to happen. Large NZGB bond due to mature next week

By Kymberly Martin

It was a fairly quiet day in the NZ market with swaps closing up around 1 bps across the curve and swap-bond spreads slightly wider.

NZ 2 and 5-year swap closed at 3.50% and 3.57% respectively, as the market prices around 27 bps of RBNZ cuts in the year ahead.

We do not expect cuts to be delivered, but we expect the market to remain inclined to price cuts in coming months.

Pricing of cuts may be further encouraged by the 20 April release of Q1 CPI that we expect to read just 0.1%y/y.

Overnight, German 10-year yields touched new historic lows below 0.14%. Peripheral European spreads to German bonds also pushed wider as Greek negotiations remain perilous.

Greece has secured an increase of emergency funds available to its banks from the ECB. However, this is a small stop-gap measure ahead of a more enduring bailout that needs to be finalised within weeks in order to avoid default.

There was not too much on the US data front to drive US yields overnight. They drifted a little higher into the auction of 30-year USTs early this morning.

Yields then gapped higher, as the high yield accepted at auction was some way above prevailing market rates. From intra-night lows close to 1.88%, US 10-year yields now trade at 1.95%.

This will likely exert a bit of steepening pressure on the NZ swap cure today.

Longer-dated NZGBs should remain relatively well supported by demand given the imminent maturity of the NZGB 15 April 2015 bond.

Daily swap rates

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

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