NZ swaps closed down 1-5 bps yesterday while bond yields declined 6-7 bps.
Overnight, the US market was closed for Thanksgiving while German yields traded sideways.
NZ swaps slipped across the curve in the afternoon, taking their cue from moves across the Tasman, after a soft headline AU Q3 capex number. The market has slightly increased its expectations for RBA cuts, to 20 bps, by mid next year.
The NZ 2-10s curve also flattened from 87 bps to 84 bps.
The market continues to price around 35 bps of RBNZ cuts by mid next year, but only a 55% chance of a cut on 10 December. A 25 bps cut at this meeting remains our core view.
There was good demand shown at yesterday’s DMO tender of NZD200 mln of NZGB2020s. The auction attracted a 5.3x bid-cover ratio and the successful yield (2.87%) was inside pre-tender marks. The tender suggests some tentative interest may be returning to the NZGB market after the recent sharp fall in NZ swap-bond spreads and underperformance of NZGBs versus ACGB and UST equivalents.
We are now close to levels we have highlighted to buy NZGB23s relative to swap (target entry 10 bps on ASM) or NZGB27s relative to UST27s (target entry 130 bps). The next tender of nominal NZGBs (2027s) is not until 17 December. However, we note this will be hot on the heels of the US FOMC announcement in the morning. A Fed hike could have the market jittery and reticent to immediately add to NZGB duration.
In a very quiet night, as the UST market remained closed, European equities rallied, credit spread proxies narrowed slightly and core bonds traded tight ranges. German 10-year yields now trade at 0.47%. It looks to be a quiet end to the week, in the absence of local data releases. The release of UK GDP will likely be in the spotlight tonight.
Kymberly Martin is on the BNZ Research team. All its research is available here.
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The tender suggests some tentative interest may be returning to the NZGB market after the recent sharp fall in NZ swap-bond spreads and underperformance of NZGBs versus ACGB and UST equivalents
Given that the recent sharp IR swap premium collapses over government debt are in the region of 25bps, across durations, it would seem bank depositors need to know which way the collateral calls landed in respect of, say, ANZ's notional interest rate swap book recorded at $1,140, 894 millions? View data Page 21 in 22 of 82 PDF
The RBNZ was quick to note:-
Whilst there are differences between different classes of
unsecured creditors, they all have the same legal claim on
the bank. Each has freely invested in a private institution and
has enjoyed a return on that investment whilst accepting
the risks associated with the investment. Read more
Those seeking to undertake due diligence in respect of their life savings need to know what is going on now, not when it is too late.
Some seem unhappy. Are banks net fixed receivers?
Ten of the biggest Wall Street banks and two trading platforms face a US class action suit accusing them of conspiring to limit competition in the $320 trillion market for interest rate swaps.
The antitrust complaint was filed by the Public School Teachers' Pension and Retirement Fund of Chicago, according to Reuters. They purchased interest rate swaps from different banks to manage risk and insulate themselves from changes in monetary policy.
The Chicago Teachers’ Pension and Retirement Fund says it overpaid for the swaps as a result of the banks’ collusion, the lawsuit contends. Read more
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