Led by Germany, global rates rise. US payrolls next focus with eyes on wages. Local markets see a rate hike here well before RBNZ's expectations

By Jason Wong

A slightly more upbeat ECB put upward pressure on European bond rates.

Germany’s 10-year rate is up around 6 bps to 0.42%. This has helped lift the US 10-year rate up a couple of basis points, but the top of the 2.30-2.60% range is holding.

The peak in that rate was just under the 2.59% mark and it currently sits at 2.58%.

Tonight sees the release of non-farm payrolls, which is expected to be a bumper result, supported by the unusually warm US winter. The Bloomberg survey shows expectations of a 200k gain, but many expect a stronger result than this following the ADP employment release, so the whisper number is probably closer to 225k+.

The wage figures will be more important and they are expected to show some recovery after the surprising weakness in January.

The local curve yesterday was driven by global forces, which resulted in a higher and steeper yield curve.

The 2-year swap rate closed 2.5 bps higher at 2.355% while the 10-year rate rose by 4 bps to 3.605%.

The steady fall in the NZD over the last couple of weeks has had no impact (yet) on monetary policy expectations.  OIS pricing for the November meeting has been locked in around 1.875%, implying a 50/50 chance of a November rate hike.  The market hasn’t moved more than half a basis point away from this mark for 3 straight weeks.  This reflects the clear guidance from the RBNZ.

No one outside the RBNZ believes that the Bank will keep policy on hold for 2-3 years, but with market pricing already well ahead of RBNZ projections, the short end of the curve is well anchored.

We will probably have to wait until CPI data are released in mid-April before sentiment on the NZ short-end changes.

Jason Wong is on the BNZ Research team. All its research is available here.