US Treasury yields ended down about 2 bps across the curve, with 10-year rate closing at 1.72%.
In choppy trading in the minutes after the US employment release, the 10-year rate reached a 4-month high of 1.77%, but with non-farm payrolls and wage growth coming in slightly below expectations, the path of least resistance was lower rates.
The data were good enough to keep alive the prospects of a Fed rate hike in December, but not strong enough to suggest a move in the days before November’s US Presidential election. OIS pricing suggests a 76% chance of a hike by December and a 26% chance of a November hike.
In a speech delivered Sunday, Fed Vice-Chair Fischer commented “Since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years”.
Earlier, European bond rates were higher, with the UK 10-year rate up 10 bps to 0.97% and Germany 10-year rates up 4 bps to 0.02%. UK rates are on an upward path as fears intensify about the country’s future in a ‘hard’ Brexit world. The ‘flash-crash’ in GBP didn’t help sentiment, as investors surely pondered the merits of a sub-1% 10-year yield with still-significant downside risk to the currency and an uncertain economic and political outlook.
Global forces continued dominate local trading on Friday, and that meant further upside pressure to rates, a trend evident consistently all week. The 2-year swap rate closed up 1 bp to 2.09% and the 10-year rate rose by 2 bps to 2.62%.
There’s little data out over the next 24 hours and the US holiday should keep trading ranges narrow. Attention will turn to the second US Presidential election debate that begins at 2pm, although media reports over the weekend that painted Mr Trump’s behaviour a decade ago in very poor light have reduced the chance of a Trump victory to just 18% on forecast models run by Nate Silver.
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Jason Wong is on the BNZ Research team. All its research is available here.
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