The NZ interest rate flattened yesterday, driven by falling rates at the longer-end, a reflection of the US Treasury curve seemingly bracing itself for an accident in Greece.
Overnight, the US curve continued to flatten. The 10-year Treasury yield is unchanged at 2.14%.
NZ 10-year swap yields declined by 3 bps yesterday, in deference to the strong downdraft in US long-end rates on Tuesday. Short-end rates held firm despite that, with interest still evident to pay fixed rates around these levels.
As expected, there is some reluctance to push short-end rates much lower, given how heavily poised the market is for an RBNZ rate cut by July.
Overnight, long-end US bond yields looked to recover some of their fall, after early reports from Greek officials that a deal accord was being drafted. 10-year Treasury yields tracked higher from 2.15% to 2.17%. But as it became clear that European officials did not agree that any great progress was being made, long-end yields wilted again. The 10-year bond yield currently trades at 2.14%.
Short-end US yields did rise, however, as optimism grows that the US economy may be bouncing back from the Q1 slump. This may be reflected in short-end NZ rates this morning, but any moves are likely to be overwhelmed by reaction to Fonterra’s 2015/16 milk payout forecast, due in the next few hours.
Today’s, Australia’s capex report will be keenly watched, to study whether capital spending in the non-mining sector is picking up.
Later, a brace of US data (initial jobless claims, and pending homes sales) will be eyed, ahead of more important reports due on Friday.
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Raiko Shareef is on the BNZ Research team. All its research is available here.
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