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Non-resident holdings of NZGBs now up to 70% in April, a six year high. But lower demand for May offering sees yields rise

Bonds
Non-resident holdings of NZGBs now up to 70% in April, a six year high. But lower demand for May offering sees yields rise

By Kymberly Martin

There was a further push higher and steeper in the NZ curve yesterday.

US 10-year yields traded from 2.29% down to 2.24%.

NZ yields pushed higher after the surprisingly strong retail sales release yesterday morning. 

Upward pressure at the long-end of the curve was accentuated by a soft DMO tender of NZGBs in the afternoon. The bid-to-cover ratio was a modest 2x and there was a fairly large range of successful bids from 3.71%-3.79%. NZGBs continued a steady sell-off after the result. The yield on NZGB27s closed up 7 bps, at 3.74%. NZ 10-year swap also followed the move, closing up 5 bps, at 4.05%. The 2-10s curve has now steepened to 62 bps.

However, it was interesting to see the publication of non-resident holdings of NZGBs yesterday.

These had spiked up to 70% in April, their highest level since October 2009. So it is not clear whether yesterday’s soft tender represents genuine disinterest in NZGBs or simply bad timing given the current sell-off in global bonds.

Overnight, in the absence of key data releases, German and US bonds experienced some consolidation. German 10-year yields traded from intra-night highs above 0.76% to sit at 0.70%. US equivalents traded down from 2.29% to 2.24% currently.

There is little on the domestic agenda to drive yields today, with a smattering of US data to influence offshore yields into weekend.

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Kymberly Martin is on the BNZ Research team. All its research is available here.

Daily swap rates

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Source: NZFMA
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1 Comments

These had spiked up to 70% in April, their highest level since October 2009. So it is not clear whether yesterday’s soft tender represents genuine disinterest in NZGBs or simply bad timing given the current sell-off in global bonds.

Lower loss costs (DV01?) than many other sovereign evils?

Maybe they (investors) wish they had taken heed of Bill Gross: We are approaching that point now as bond yields, credit spreads and stock prices have brought financial wealth forward to the point of exhaustion. Read more

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