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US Fed signals prime markets for coming US rate hikes. Eyes on many US data releases tomorrow

Bonds
US Fed signals prime markets for coming US rate hikes. Eyes on many US data releases tomorrow

By Raiko Shareef

Local interest rates rose modestly yesterday, reflecting the tick higher in US bond yields on Friday.

US bond markets were closed overnight for the Memorial Day holiday.

The long-end of the NZ curve was marked higher by 2 bps, while the 2-year swap yield rose by 0.5 bps to 3.39%.

We continue to see the 2-year swap yield hold near the bottom of the 3.30% - 3.60% range while the market continues to price in the prospect of near-term RBNZ rate cuts.

With all the debate about the timing of the first Fed Funds Rate hike (we pick September), Fed Vice Chair Fischer noted that the choice for FOMC members rested between starting early and undertaking a relatively gradual tightening cycle, or delaying and run the risk of a steep climb in interest rates.

In his speech, he also made the point that the first hike would represent a shift from “ultra-expansionary monetary policy to an extremely expansionary monetary policy”.

Separately, Cleveland Fed President Mester said that the “time is near” for the first rate hike, and that “every meeting is on the table”.

It is unlikely to be a lively local session for rates. Instead, we look to US data this evening to set the tone for global interest rates.

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Raiko Shareef is on the BNZ Research team. All its research is available here.

Daily swap rates

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