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Local swap rates fall and further falls are possible. Global moves add to downward pressures. Eyes on NZGB tender

Bonds
Local swap rates fall and further falls are possible. Global moves add to downward pressures. Eyes on NZGB tender

By Jason Wong

There has been downward pressure on global rates, with the risk-off mood and weaker data flow.

US 10-year Treasuries dipped as low as 1.65% immediately following the PMI services data, but the rebound in oil prices has seen a move back up to 1.71%, down 2 bps for the day.

Germany’s 10-year rate continues to fall and is now down to just 0.15%.  Lower European rates are spilling over into the UK market, where rates fell 7 bps to 1.36% – no Brexit fears there for the UK Gilt market.

Locally, the downward pressure on rates also continues. Giving the rally some support was Finance Minister Bill English’s comments in the NBR online. The headline was “English drops heavy hint to Reserve Bank”. The report indicated that English had noted the drop in inflation expectations and that the RBNZ should follow those expectations.

Bank bill futures rallied 3-4 bps and the OIS rate for the March meeting closed at 2.42%, implying a 32% chance of a 25 bp cut to the OCR.  A full 25 bps rate cut is now priced in by June.  The 2-year swap rate fell by 3 bps to a fresh low of 2.45%.  We think that rates can fall further, with the market increasingly likely to fully price in 50 bps or so. The 10-year swap rate fell by 4 bps to 3.11%. The overnight rally in global bond rates should continue to put downward pressure on local rates today.

The NZ government is tendering $100 mln of 2033 nominal bonds today, the first issue since the $2 bln syndication in October last year.  Offshore interest in NZ bonds has been fairly modest recently, despite NZ’s high relative yields, but the small issue should be easily absorbed by the market.  Yesterday, the yield on this 2033 bond fell by 6 bps to 3.32%.

Daily swap rates

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

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