The NZ market again took its cue from offshore. NZ swap and bond yields closed down 2- 7 bps, with a flatter curve. Overnight, core offshore yields traded in a tight range.
NZ yields yesterday reversed much of Monday’s rise. 10-year swap closed down 6 bps, at 3.41%. The move mimicked the previous night’s offshore moves, as there was little domestic news flow. Trading likely remains thinned due to local summer holiday conditions. We suspect we are yet to see corporate payers being drawn in to take advantage of the New Year dip in yields.
At the short-end, NZ 2-year swap closed at 2.39%. This level is consistent with a market looking for a steady RBNZ hiking cycle to begin late this year. This seems fair.
The yield on NZ generic 10-year bonds closed down 7 bps yesterday, at 3.18%. As the global bond sell-off lost momentum at the end of last year, the market appears to be relooking at the inherent appeal of NZGBs (yield pickup, limited sovereign risk, constrained supply, contained NZD risk). Next Thursday’s DMO auction of NZD200m of bonds will be an interesting barometer of demand. It will be the first tender since mid-December.
China inflation data passed without much fanfare yesterday afternoon. Still it was notable that the PPI series picked up to 5.5%y/y in December. This is its highest level since late-2011. As a measure of prices received by domestic producers on either the domestic or foreign market it is a relevant indicator of turning inflationary pressures globally.
Overnight, in quiet markets, US yields traded sideways. US 10-year yields made early morning highs near 2.39% before returning to their current level of 2.37%.
The economic dataflow domestically and globally remains thin over the coming 24-hours. It would therefore likely require political or corporate news flow to jolt markets from their current mild manner.