ECB begins corporate debt buying program. Average euro IG yield below 1%. Local markets see no OCR change today

By Jason Wong

US 10 year Treasuries have traded in a tight trading range of 1.70-1.72%, with little news to digest. The 1.70% mark has represented an area of key support since the start of the year, and there’s nothing much out this week to take rates down another leg.

Trading is likely to remain light ahead of the upcoming UK referendum and FOMC meetings. Fed Funds expectations have stabilised over the past couple of sessions, with little prospect seen for a tightening later this month or in July.

Germany’s 10-year government bond rate reached a fresh record low overnight of 0.035%, before closing at 0.05%.  It feels inevitable that the rate will soon go negative, the same way as Japan and Switzerland have done.  This helps contain US rates, with global bond investors keeping the Germany-US spread in check.

The ECB’s corporate debt buying programme began overnight.  Remarkably, the average yield on euro-area investment grade debt has already fallen below the 1% mark, a record low, and corporates have been busy issuing debt, in anticipation of the purchases.

The local rates market saw higher rates yesterday, reversing the previous day’s declines.  Manufacturing sales data were soft and, being the last partial indicator released that feeds into GDP, we firmed up our estimate for Q1 at 0.3% q/q.  Such a weak result (negative growth in per capita terms), represents a payback from the more robust growth seen in the second half of last year.  Our economists see better growth prospects for the current quarter and into the second half of this year, which matters more for financial markets.

The OIS market prices this morning’s RBNZ meeting at 2.19%, suggesting just 6 bps of easing priced in.  The stronger housing market and boost to the CPI from higher oil prices give the RBNZ an excuse to keep rates unchanged, but the stronger NZD won’t be helping the Bank in its desire to get inflation back up to target.  A full 25bp rate cut is priced in by early next year.  The 2-year swap rate rose 5bps to 2.29%, possibly reflecting a squaring up of trader positions ahead of the announcement.

Daily swap rates

<!–

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var chart_subtitles_arr= ["Opening daily rate","Opening daily rate","Opening daily rate","Opening daily rate","Opening daily rate","Opening daily rate","Opening daily rate"];
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var timestamweek = 604800000;
var timestamday = 86400000;
var timestammonth30 = 2592000000;
var timestammonth31 = 2678400000;
var timestamyear = 31536000000;
var timestamquarterly = 7776000000;

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var mm = fomat.substring(k1+1,k2);
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var c_year=Number(current_year.substring(2,4));
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mm= “12”;
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var dd2 = time4.getDate();
var mm2 = time4.getMonth();
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var ahref_title=”Click here for full story”;
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var yy = "20"+fomat.substring(k2+1,k3+1);

// conversion of months into numerical form

//+++++++++++++++++++++++++++++++++++
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else if (mm == "Sep")
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mm= "09";
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mm= "11";
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else if (mm == "Dec")
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mm= "12";
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//here flagAr may be
var timestam = Date.parse(date);
var time4 = new Date(timestam);
var Weeko = time4.getDay();
var dd2 = time4.getDate();
var mm2 = time4.getMonth();

var yy2 = time4.getFullYear();
var yy3 = yy2+"";
var yy4= yy3.substring(2,4);
//++++++++++++++++++++++++this for days conversion++++++++++++++++++++++++++++
if (Weeko==1)
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Weeko = "Mon";
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Weeko = "Tue";
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else if (Weeko==3)
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Weeko = "Wed";
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Weeko = "Thu";
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Weeko = "Fri";
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else if (Weeko==6)
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Weeko = "Sat";
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else if (Weeko==0)
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Weeko = "Sun";
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//+++++++++++++++++++++++this is for month conversion+++++

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mm2 = "Jan";
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else if (mm2==1)
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mm2 = "Feb";
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else if (mm2==2)
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mm2 = "Mar";
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else if (mm2==3)
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mm2 = "Apr";
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else if (mm2==4)
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mm2 = "May";
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else if (mm2==5)
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mm2 = "Jun";
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else if (mm2==6)
{
mm2 = "Jul";
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else if (mm2==7)
{
mm2 = "Aug";
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else if (mm2==8)
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mm2 = "Sep";
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else if (mm2==9)
{
mm2 = "Oct";
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else if (mm2==10)
{
mm2 = "Nov";
}

else if (mm2==11)
{
mm2 = "Dec";
}
//++++++++++++++++++++++++++++++++++++++++

//weekly
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fomat2=dd2+"-"+mm2+"-"+yy4;
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// Daily
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fomat2=mm2+”-“+yy4;
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fomat2=mm2+”-“+yy4;
}

arr[i][0]= fomat2;
var decpad;

decpad = parseFloat(arr[i][1]);
//arr[i][1] = roundVal(decpad);
arr[i][1] = decpad;
if(i==(arr.length-1))
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var xvalu=dd2+”-“+mm2+”-“+yy4;
var yvalu= String(arr[i][1]);
var xyvalu=”Latest value at “+xvalu+” is “+yvalu;
updt=”Updated on “+xvalu;
}
}

}
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//other required functions

//chart configuration starts here

function getXMLHttpRequest(file) {

//var arrSignatures = [“MSXML2.XMLHTTP.5.0”, “MSXML2.XMLHTTP.4.0″,
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try
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var xmlhttp = new window.XMLHttpRequest();
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function readCSV(locfile) {
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req.send("");
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fstart=-1;
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fstart = (lineCSV[i].match(/^"/)) ? i : fstart;
}

var j=0;

for (var i=0;i<lineCSV.length;i++) {
if (lineCSV[i]!="-DELETED-") {
CSV[j] = lineCSV[i];
j++;
}

}

return CSV;
}

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function setdecimalpoints(deca)
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var deca1= deca;
var deca2= parseInt(deca);
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return 2;
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else
{
return 0;
}
}
for(i=0;i

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Jason Wong is on the BNZ Research team. All its research is available here.