More historic lows

Yields declining across the curve. Demand for NZGBs well supported as NZs position positive as global yields sink

Bonds

Yields declining across the curve. Demand for NZGBs well supported as NZs position positive as global yields sink

25th Jul 16, 7:40am by Kymberly Martin

By Kymberly Martin

On Friday, NZ swap and bond yields closed down 1-5 bps with some flattening of the curve. In what has now become a familiar pattern, US 10-year yields pushed up toward 1.6% on Friday night, before dropping to close for the week at 1.57%.

It was fairly quiet on the domestic data front on Friday. NZ 2-year swap closed little changed on the day, at 2.05%. However, the long-end of the curve seemed to take its cue from the early morning rally in Treasuries that had seen US 10-year yields drop around 7 bps. NZ 10-year swaps closed down 4 bps, at 2.44%, a historic low.

Meanwhile, following on from the previous day’s solid NZDMO auction, NZGB yields also declined across the curve. Benchmark ’10-year’ yields closed down 4 bps, at 2.20%, also a historic low. It is difficult to see demand for NZGBs dissipating while global yields remain depressed, NZGB issuance contained, NZ sovereign risk limited and NZD risk apparently manageable.

With 2½ weeks until the RBNZ’s next meeting the market is almost 95% priced for a 25bps cut. We expect a cut. The market prices a trough in the OCR at around 1.68% within the year ahead. This seems a fair reflection of current risks.

Core US and German yields pushed higher on Friday night. They reached their highs prior to the positive surprise on the US manufacturing PMI release. A drift lower in yields, into the close, mimicked a decline in the global oil price. US and German 10-year yields closed for the week at 1.57% and -0.03% respectively.

There are no scheduled data releases today. However there is a (non-public) speech scheduled from the RBNZ’s Governor, entitled “Keeping our financial system safe in a changing world”.

Daily swap rates

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Source: NZFMA

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

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2 Comments

by Stephen Hulme | 25th Jul 16, 10:03am 1469397795

Meanwhile, following on from the previous day’s solid NZDMO auction, NZGB yields also declined across the curve. Benchmark ’10-year’ yields closed down 4 bps, at 2.20%, also a historic low.

Lower than the OCR @ 2.25%.

The RBNZ has negligently engineered a lower forecast growth path, whilst it flounders around trying to raise a narrow price index embedded in crafted CPI inflation.

Stealing savers returns to reward the indebted asset rich minority at the expense of the majority, hence the nation, does little to inspire committed real production investment, when easy state sponsored returns are readily available elsewhere.

by Hevi Groswaite | 25th Jul 16, 11:17am 1469402225

It's a race to the bottom in lockstep, thanks to the prevailing narrative of central bank omnipotence, and the fact that everybody knows that everybody knows, they have our backs!
Competitive currency devaluation and the consequent erosion to our living standard is the new inflation, conveniently hidden behind a 'save the world' agenda by governments worldwide. The yoke is closing.
The U.S. federal government can bail out 'to big to fail' private enterprise, but will not bail out bankrupt states. As a matter of fact, the states can not even declare bankruptcy to restructure their debt, but the federal government could renege on their foreign debt, and none would touch them.

Welcome to the land of the fee and the home of the slave.