NZ swaps curve ‘bull’ flattened

NZ Treasury not persuaded on case for more macro-pru on Auckland housing. Greek deal prospects slip. Eyes on NZ trade balance

Bonds

NZ Treasury not persuaded on case for more macro-pru on Auckland housing. Greek deal prospects slip. Eyes on NZ trade balance

26th Jun 15, 8:15am by Kymberly Martin

By Kymberly Martin

There was a slight flattening of the NZ curve yesterday.

Overnight, US 10-year yields traded up to 2.42% before returning to 2.39%.

In the absence of major domestic data flow yesterday the NZ swaps curve ‘bull’ flattened. While 2-year swap closed at 3.10%, 10-year swap declined 3 bps to 3.96%.

RBNZ-compiled LVR data was released during the day. It showed bank lending to borrowers with deposits below 20% remained well within the ‘speed limits’ previously set by the Bank.

Separately, in the afternoon the NZ Treasury released documents providing a view on the LVR policies (existing and proposed). It felt more work was required to assess the real impact of these tools. It did not feel consultation documents made a “compelling case” for the proposed new set of macroprudential tools to be applied to Auckland property investors.

Overnight, the stalemate in Greek negotiations remained. The frustrated German Chancellor Merkel went as far as to say “One even has the impression that we’ve regressed a bit”. That is clear diplomatic-speak to say they are getting further from a deal. Greek 10-year bond yields have ticked up another 15 bps to 10.94%.

Meanwhile, US 10-year yields drifted higher as US May personal spending data came in a little above expectation. However, yields declined from intra-night highs above 2.42% after a solid auction of US 7-year Treasuries in the early hours of this morning. Yields now sit at 2.39%.

Today brings the domestic data highlight for the week in the form of the NZ trade balance. This will gain more attention in light of the current account concerns the RBNZ expressed in its June MPS. We are looking for the trade deficit in the 12 months to May to hit $3 bln.

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

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Source: NZFMA

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1 Comments

by Stephen Hulme | 26th Jun 15, 9:29am 1435267742

However, yields declined from intra-night highs above 2.42% after a solid auction of US 7-year Treasuries in the early hours of this morning.

...the surge in Indirects, which took down a whopping 56.65% of the auction, which is the highest interests by Indirect bidders in the belly of the curve since the 64% sale to indirects in December 2010! Because when in trouble, who better to come to the rescue than foreign central banks. Read more

A surprising turn of events.

The latest TIC data through April 2015 confirms that central banks have not just mobilized massive reserves, they have done so at an unprecedented rate consistently for the past six months tracing back to the aftermath of October 15. Starting December, "official" sources have sold (mobilized) a net $77 billion in dollar-denominated assets; there is simply nothing on that scale in the historical accounts, even the worst parts of 2008.

The reason for that huge central bank presence is the retreat of bank balance sheets. The TIC series also calculates a measure of banks reporting their own "dollar" liabilities. In December, bank liabilities in "dollars" dropped by the largest amount on record: -$241 billion. That followed an unusual drop in November of $11 billion (the middle month of each quarter, since the 2013 taper "tightening", typically sees an "inflow"). Further, balance sheet expansion in leading months has been severely reduced, as April's "inflow" was just $70 billion compared to $126 billion in January and $173 billion in October. In short, as expected by the behavior of both the "dollar" and foreign central banks, bank balance sheets are contracting. Read more