US 10-year Treasuries have traded in a tight range of 1.75-1.79% and they currently sit barely changed at 1.78%.
There’s the hint of consolidation after the strong rally of last week.
We note the most recent CFTC data shows speculative positioning in US 10-year Treasuries moved short last week. i.e. the market is now marginally positioned for higher yields. Yields are slightly more likely to dip on dovish news-flow.
There wasn’t a lot of activity in local rates trading yesterday, but yields were marked a lot lower, driven by a strong rally in the Australian market.
The RBA is not expected to change the cash rate and its mild easing bias should be maintained later today.
NZ’s 2-year swap rate ended down 3 bps at 2.18%, while the 10-year rate ended down 7 bps at 2.95%. Both closes represent fresh record lows.
We continue to expect that NZ 2-year swap can trade down to 2.0% in coming weeks/months and the yield to fall below that of Australia.
A cut by the RBNZ at its 28 April meeting could get us there sooner rather than later. On delivery, the market would likely price further cuts ahead.
NZ bonds remain in good demand. In a low yield environment, NZ’s high yields stand out as representing very good value. And with a central bank with more work to do to get inflation anywhere near its target mid-point, that only adds to their attraction.
NZ’s 10-year bond (2027) ended yesterday down 8 bps at 2.85%, a fresh record low.
Daily swap rates
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Jason Wong is on the BNZ Research team. All its research is available here.
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