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US inflation expectations rise which the Federal Reserve will have noted. Bond markets unsure when Fed rate hike will come

Bonds
US inflation expectations rise which the Federal Reserve will have noted. Bond markets unsure when Fed rate hike will come

By Kymberly Martin

NZ swap and bond yields closed down 5-6 bps. 

On Friday night, US 10-year yields traded down from 2.23% to 2.14%.

In the absence of domestic data releases, NZ swaps moved lower on Friday, largely in sympathy with the previous night’s offshore moves.

2-year swap closed at 3.38% while 10-year closed at 3.99%.

US long-yields drifted lower into weekend assisted by an array of generally disappointing US data releases. However, a notable exception was the inflation expectations component of the University of Michigan consumer survey. This ticked up to 2.9% from 2.6% previously. This will not go unnoticed by the Fed as it balances its inflation and ‘full’ employment mandate.

Once again, US 10-year yields traded fairly wide ranges. From 2.23% on Friday afternoon yields ended the week at 2.14%.

The MOVE index of US bond volatility remains at a fairly elevated level, well above the low levels achieved throughout 2014.

We see this feature of the market remaining as the market responds to every data point in the countdown to the first Fed hike in almost seven years. We continue to have this pencilled in for September.

Today’s NZ PSI release is unlikely to have a major impact on the NZ rates market.

Tomorrows’ release of the RBNZ’s inflation expectations survey and release of the RBA Minutes have greater potential to influence NZ short-end rates.

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Kymberly Martin is on the BNZ Research team. All its research is available here.

Daily swap rates

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Source: NZFMA
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Source: NZFMA

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The MOVE index of US bond volatility remains at a fairly elevated level, well above the low levels achieved throughout 2014. Graphic view

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