The US 10-year rate rose to as high as 2.58% after the strong ADP employment release, but has since settled at 2.56%, up around 6 bps from the NZ close.
Importantly the top of the well-established 2.30-2.60% range has held.
With a Fed rate hike all but certain next week, the question now is when will the Fed hike next?
According to CME Group calculations, market pricing is fairly evenly split as to whether the Fed raises rates again as soon as June.
If we turn to the December meeting, the highest probability outcome is that the Fed would have raised rates by 3 times by that meeting. While 3 rates hikes this year is by no means fully priced, market pricing is consistent with 3 rate hikes being more likely than 2 by year-end.
In the local rates market yesterday, there was a slight bias for curve steepening, driven by global forces but the move was not significant.
The 2-year swap rate fell by 1 bp to 2.33% while the 10-year rate rose by 1 bp to 3.56%.
Expect further steepening pressure on the curve today.
Daily swap rates
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Jason Wong is on the BNZ Research team. All its research is available here.
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