By Kymberly Martin
NZ swaps closed down 1-5 bps yesterday, with a flatter curve.
Overnight, US 10-year yields slipped from 1.84% to 1.80%.
In the absence of domestic data releases yesterday, NZ swaps declined along with a drift lower in US and AU yields. NZ 10-year swap closed down 5 bps at 2.89%.
The May historic lows sit a little lower around 2.80%. As the short-end of the curve was better anchored, this move has taken the 2-10s swap curve back down to 60 bps.
Ahead of next Thursday’s RBNZ meeting the market still prices little chance of a cut. Slightly less than a 25% chance is priced, although the market still prices a full cut within the year ahead. This would take the OCR to 2.0%.
Overnight the ECB left its interest rate and quantitative easing program unchanged. President Draghi emphasised the Bank is focusing on implementing previously announced measures, including the corporate bond buying program that kicks off on 8 June. The ECB provided further detail on the pending program. It will not be necessary for the ECB to sell corporate bonds it buys, even if they are subsequently downgraded to ‘junk’ status.
The ECB’s published forecasts for CPI were revised slightly higher for 2016 (reflecting higher oil prices) but left unchanged for 2017/2018. After the announcements German yields traded lower. From 0.15%, German 10-year yields now sit at 0.11%.
US yields also followed the move lower. An ‘in-line’ US ADP employment report briefly caused yields to spike higher. But that proved short-lived. As we look toward tonight’s US payrolls report, US 10-year yields trade at 1.80%. The overnight moves, should place further downward pressure on the long-end of the NZ curve this morning.
Daily swap rates
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Kymberly Martin is on the BNZ Research team. All its research is available here.
1 Comments
Flagrant state manipulation undertaken by unelected apparatchiks rules the fixed income curve, whether it be sovereign or corporate issuance.
“As bonds get to a shorter and shorter maturity, you’ll see more trade with a negative yield,” said Iain Stealey, a portfolio manager with JPMorgan Asset Management. “Everything is relative and zero is not the lower bound any more.”
Negative yields have not deterred investors from purchasing the bonds as they brace for added buying pressure from the ECB, seen pushing prices even higher. Some have already positioned for the buying that officially starts on June 8.
“As a dealer, you are happy to bid through zero because you know the ECB will keep buying,” Barnaby Martin, head of European credit strategy at Bank of America Merrill Lynch, added. The central bank has said it will be permissible for it to purchase investment grade corporate bonds so long as they yield more than the ECB’s deposit rate of minus 0.4 per cent. Read more
Productive capital investment be damned - all hail the deflation.
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