NZ yields rose and the curve steepened yesterday, following offshore moves.
Overnight, US yields reversed half of Friday night’s gain. 10-year yields now trades at 2.38%.
Trading conditions in the NZ market continue to have a holiday feel overhanging them. However, yields yesterday took their cue directly from the US-led moves on Friday. The NZ swap curve steepened. 10-year yields closed up 6 bps, at 3.59%. The short-end of the curve was better anchored, with 2-year swap closing up just 2 bps, at 2.43%. Generic 10-year NZGB yields also rose by 7 bps, to 3.25%.
US yields have declined since the start of the week, giving back some of Friday’s gain. Contributing factors may have been a 3% decline in the WTI oil price and a slightly more cautious mood in markets as it pondered the prospect of a ‘hard Brexit’. This followed comments from UK PM, May, over the weekend. US 10-year yields have traded down from 2.43% to below 2.38%.
German equivalents traded down from evening highs above 0.33% to 0.28% currently. It is notable that since late-December, US-German 10-year spreads have compressed from 234 bps to 210 bps, as US yields have declined. We continue to see this spread as a constraining factor on the ability for US Treasuries to independently sell-off.
The early year trickle of offshore data continues today. Chinese CPI and PPI data is worth keeping an eye out for. China PPI (prices received by domestic producers either on the domestic or foreign market) has been steadily rising over the past year from -6% to +3.3%, as of November. Consensus is expecting a +4.6% reading for December. This may be seen as a precursor to broadening inflationary pressures globally.