HONG KONG, June 18 (Reuters) - Rate swaps markets in Australia and New Zealand sold off as the lack of any economic data releases shifted the focus back to the global recovery and the possibility of official interest rates rising.
Hong Kong's rate markets were cool to the possibility of a big cash outflow on account of a HK$50 billion ($6.5 billion) government bond issue but some analysts are predicting higher rates if the plan is finalised.
Dollar funding rates were unchanged after a seven-day declining streak with Standard & Poor's lowering its credit ratings on 18 U.S. banks and predicting more pain for the already weakened industry from more regulation and market volatility.
In New Zealand, the interest rate swaps curve steepened with the shorter tenors rising by 3 basis points (bps) and the longer tenors higher by up to 11 bps.
The two-year rate rose 3 bps to 3.8 percent, while the 10-year swap rose 11 bps to 6.03 percent.
"There was a lack of newsflow and data to drive markets here locally, so potentially it could have been unwinding of positions from the flattening we saw in the previous few days," said Philip Borkin, ANZ-National markets economist.
The 10-year swaps are still below last week's level of 6.14 percent and the 2-year swap is also lower than Friday's 3.85 percent.
"There was also a feeling that Dr Bollard's comments yesterday did not try to talk down the markets too much," he added in reference to Reserve Bank of New Zealand Governor Alan Bollard's remarks about economic recovery.
Bollard said on Wednesday that the economy is near its low point and should start growing by the end of the year.
"We expect the economy to begin growing again toward the end of the year, but the recovery is likely to be slow and drawn out. It could also be erratic," he said.
The Australian IRS curve also steepened after the recent rally following the release of the central bank's minutes.
The 10-year swaps rose to 6.003 percent on Thursday from 5.85 percent.
Rates had eased on Tuesday after the Reserve Bank of Australia's (RBA) June 2 meeting minutes backed market speculation the it was done with rate cuts but also indicated it was ready to move in if the situation warranted.
Meanwhile in Hong Kong, swaps markets continued to follow the easing in U.S. interbank markets despite news that plans were under discussion for the territory's government to sell bonds worth HK$50 billion in September.
The amount is much larger than expected. Earlier this year, Financial Secretary John Tsang said the market could absorb HK$10 billion to HK$20 billion of government bonds per year.
That could potentially drain a lot of the liquidity injected by the monetary authority to keep the dollar-pegged currency within its trading band.
But on Thursday, the two year swaps edged down by 2 bps to 1.42 percent.
"Longer term I am expecting a pick up in IRS on the back of the economic recovery," said Frances Cheung, fixed income strategist with Standard Chartered Bank, who predicts the 2-year swaps to rise to 2 percent by the year-end. (Reporting by Umesh Desai; Editing by Jan Dahinten)