US 10-year Treasury yields are up +5 bps to 2.38%, after yesterday threatening to make fresh lows for the year, so the 2.30-.2.60% range remains intact for now.
The market tried to rally after the Fed’s Bullard’s comments, but the fall in yields was not sustained.
As one of the most dovish members (albeit non-voting this year), his tone reflected that bias, arguing that the Fed need not tighten in March and should wait until more clarity on fiscal policy is provided. He noted both upside and downside risks to the US economy.
Elsewhere for global bonds, European rates continue to see an unwinding of the political-risk trade, with France, Italy and Spain spreads to Germany all contracting.
In the local rates market yesterday we saw some chunky falls, on the back of the MPS and buttressed by a rally in the Australian bond market. The bias is for some of that to be unwound today, given offshore moves.
NZ’s 2-year swap rate fell by -7 bps to 2.33% to its lowest level since mid-December, while the 10-year rate fell by -8 bps to 3.43%. OIS pricing continues to show little chance of the RBNZ tightening over coming meetings, while the November meeting is priced close to a 50% chance of a +25 bps hike. It wasn’t long ago that November was fully priced for a hike.
BNZ’s view remains that May-18 is the most likely start date for the tightening cycle, with the balance of risk pointing to an earlier move. It’s not hard to see the RBNZ firming up its tightening bias during the course of the year, as both headline and core CPI inflation track closer to 2% and economic growth remains solid.
In the day ahead the RBA releases it Statement on Monetary Policy, which shouldn’t surprise the market following the policy announcement earlier this week and Governor Lowe’s overnight speech. Chinese trade data and US consumer sentiment data round out the week.
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Jason Wong is on the BNZ Research team. All its research is available here.
1 Comments
"Meanwhile, bond investors’ appetite for protection against inflation is also waning: The 10-year break-even rate, a market measure of inflation expectations, has retreated to levels last seen in December. To top it off, markets see a dwindling chance of a Federal Reserve hike before the second half of 2017.
Traders have company in pulling back from bearish bond bets. A survey from JPMorgan Chase & Co. for the week ended Feb. 6 showed net short positions fell among all clients, while data from the Commodity Futures Trading Commission indicate further paring of shorts on five-year contracts among non-commercial accounts."
https://www.bloomberg.com/news/articles/2017-02-08/most-stubborn-trump-…
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