The NZ rates curve sold off modestly yesterday, as investors lightened up long positions.
The short-end of the US rates curve is 9 bps lower after the FOMC stood pat this morning.
Local interest rates rose between 3 bps and 5 bps yesterday, in what appeared to be some position squaring of long-held bets (for lower rates) at the short-end of the curve. We imagine investors were keen to take some risk off the table, ahead of the Fed. The 2-year swap yield rose 3 bps to 2.75%, and the 2s-10s curve steepened slightly.
US rates are sharply lower in the wake of the ‘no-change’ decision from the FOMC. The addition of relatively cautious wording, and the downgrades to inflation and Fed Funds Rate forecasts helped drive the rally. The median Fed Funds Rate projection was 0.375% (vs 0.625% prev) for 2015, 1.375% (vs 1.625% prev) for 2016, and 2.625% (vs 2.875%) for 2017. The long-run Fed Funds Rate is seen at 3.50%, vs 3.75% prev.
The 2-year US bond yield is 13 bps lower at 0.68%, and the 10-year yield is 9 bps lower at 2.20%.
Our take is that today’s meeting is that rate hikes in 2015 remain on the table. We had expected rates to remain unchanged today, and continue to look for a December rate hike.
Today, RBA Governor Steven’s testimony in front of lawmakers will be the highlight.
Tonight, Fed speakers kick-off the post-FOMC speaking circuit, with Williams (a voter) and Bullard (a non-voter) due to share their views.
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Raiko Shareef is on the BNZ Research team. All its research is available here.
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