Swap rates slump

China factory data helps push local wholesale rates lower and flatter. Yields fall in LGFA tender, Eyes now on Fonterra

Bonds

China factory data helps push local wholesale rates lower and flatter. Yields fall in LGFA tender, Eyes now on Fonterra

24th Sep 15, 7:52am by Kymberly Martin

By Kymberly Martin

NZ swap and bond yields closed down 4-9 bps yesterday, with a flatter curve.

Overnight, US 10-year yields traded between 2.11% and 2.17%.

It was an active day in the NZ market yesterday. Yields opened down, with the long-end of the curve particularly under pressure, given the previous night’s offshore moves.

An attempted rebound in yields late morning was curtailed by the release of the disappointing China manufacturing PMI. This saw swaps slump. 2-year closed down 4 bps, at 2.67%, while 10-year closed down 10 bps at 3.50%. NZGB yields also closed lower across the curve. NZGB27s yield closed down 7 bps, at 3.26%.

The LGFA (Local Government Funding Agency) tender also took place in the afternoon. The auction attracted ok interest, with an average bid-cover ratio of 2.2x. However, the bonds were sold 3-6 bps back from where the yields had been marked prior to the tender. This reset of levels may now start to attract some interest back into the bonds that appear to have been overlooked recently.

Overnight, despite a further 2-3% fall in global oil prices, and the afternoon’s soft China PMI, moves in most risk markets were not large. As manufacturing PMI data on either side of the Atlantic came in close to expectation, German 10-year yields traded a relatively steady range between 0.58% and 0.62%. US equivalents traded up from 2.11% to 2.17%, before returning to trade at 2.14%.

This morning, all eyes will be on the scheduled announcement from Fonterra on its expected 2015/16 payout. Some upward revision from its last indications of NZ$3.85 is expected (BNZ currently forecasts the final number for the season to be NZ$5.00).

However, revision is possibly widely anticipated given the circa 50% bounce in GDT diary prices since mid-Aug. The announcement may help provide a floor to NZ yields today, though a very strong bounce is not anticipated.

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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3 Comments

by Stephen Hulme | 24th Sep 15, 9:03am 1443042186

This reset of levels may now start to attract some interest back into the bonds that appear to have been overlooked recently.

Such relief cannot not arrive soon enough, I fear.

The developed world is beginning to run on empty because investments discounted at near zero over the intermediate future cannot provide cash flow or necessary capital gains to pay for past promises in an aging society. And don’t think that those poor insurance companies and gargantuan pension funds in the hundreds of billions are the only losers. Mainstream America with their 401Ks are in a similar pickle. Expecting 8-10% to pay for education, healthcare, retirement or simply taking an accustomed vacation, they won’t be doing much of it as long as short term yields are at zero. They are not so much in a pickle barrel as they are on a revolving spit, being slowly cooked alive while central bankers focus on their Taylor models and fight non-existent inflation. Read more

by steven | 24th Sep 15, 9:42am 1443044548

Where this "But models aside, there should be space in an economic textbook or the minutes of a central bank meeting to acknowledge the destructive influence of 0% interest rates over the intermediate and longer term." where goes wrong is the 0% rate is a symptom and not the cause. The whiners in the financial game who after decades of parasitic behaviour. They have damaged the real economy by sucking the good but out are now upset their actions have stopped earning them money for nothing.

He goes on of course to comment on "business models". Just like any other financial "god" does he mention the main stream SME businesses that actually make goods, employ ppl and pay the interest he so desires? no. He and his ilk are rentiers, hell bent on short term gain no matter the damage they do.

LOL, then he goes on to mention will 2% harm corporate america? They seem to have huge cash piles. Do they drive an economy? no the SME's do.

This is the crux of the ever repeated argument by the parasites, the demanding of interest for nothing. Worse are they "selling short"? then demanding a policy that will destroy value and send us into a depression hoping then to buy cheap?

Every time I read pieces like this I start to agree with Kunstler on the outcome....

by Stephen Hulme | 24th Sep 15, 9:46am 1443044798

But you remain an anonymous ranting employee.