European 10yr bond yields ease 1-3 bps; local rates movements all within a basis point across the swap curve; NZ government bond yields did push 2 to 3.5 basis points higher across the curve

By Doug Steel

European 10-year government bond yields eased by around 1 to 3 bps, in risk appetite ebbed slightly following Trump’s provocative comments at the end of last week and over the weekend regarding North Korea. The US market was shut.

The local rates market remains subdued. Movements yesterday were small, all within a basis point across the swap curve. NZ 2-year swap closed little changed yesterday around mid-range at 2.21%. NZ 5-year swap closed at 2.745%. NZ government bond yields did push 2 to 3.5 basis points higher across the curve yesterday, taking direction from the previous session offshore.

While the NZD has proven a little jumpy on NZ political headlines, the local rates market is taking a potential change in government in its stride. Indeed, NZ-Australia and NZ-US long term interest rate spreads have shown no sign of a political risk premium being built in. The NZ-AU 10-year government bond spread currently sits at a tight 15bps, while the NZ-US spread sits around 61bps.

Likewise, the NZ equity market is unfazed by domestic politics with the NZX50 cruising passed the 8,000 level for the first time yesterday, finishing up 0.4% on the day and up more than 16% year-to-date. This is in keeping with the generally buoyant risk-on mood globally, but also reflects the current positive growth and low interest rate environment locally.

It looks like a relatively quiet day ahead, unless politics, somewhere, can provide some excitement, although as usual there will be interest in AU business confidence data during the local session.

Doug Steel is a senior economist at BNZ Markets. All its research is available here.