There was downward pressure on US rates during the Asian trading session and those forces have continued overnight, with the US 10-year rate currently trading at its low of the day at 1.69%, down 6 bps for the day.
Even the strong durable goods orders data couldn’t lift yields. It seems that US Treasury yields are being dragged lower by global forces, with Germany and Japan rates still heading lower.
In the headlines was Japan’s 40-year bond falling below 1% for the first time, a remarkable achievement.
The market still believes that further tightening by the US Fed remains a distant prospect. The OIS market now implies a less than one in three chance of another tightening this year.
A couple of missed coupon payments by two of the larger oil and gas drillers – Energy XXI and Sandridge Energy – got the market’s attention. They have a combined $7.6 bln of debt and the prevailing view is that is the beginning of a likely wave of defaults for US oil producers over the coming year or two.
The downward pull of global forces and increasing conviction that the RBNZ will ease policy again this year continue to result in lower NZ rates. Another day, another fresh low in the 2-year swap rate, which closed down 2.5bps at 2.425%. The whole swap curve was down 2 bps from 3-years out.
The NZ 10-year government bond yield (2027) fell 3 bps to 2.98%, a record low. The first tender of 2033 bonds attracted $370m of bids for the $100m on offer. These went out at a weighted average yield of 3.31% and in the market the bond closed down 3 bps at 3.29%. Based on overnight trends, the pressure on local rates will remain to the downside.
The G20 Finance Ministers and central bank governors meeting kicks off today in Shanghai. Expectations for any coordinated policy effort are low, but expect the Statement to mention some warm fuzzies on countries not engaging in competitive devaluations. On the data front inflation data in Japan, Germany and the US are the highlights.