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Local monetary conditions tightening, seeing some rates rise. Interest rate markets waiting on US jobs report. US Fed may first raise rates, then start bond selldown

Bonds
Local monetary conditions tightening, seeing some rates rise. Interest rate markets waiting on US jobs report. US Fed may first raise rates, then start bond selldown

By Jason Wong

There’s not a lot to say about the rates market.  Reaction to the ECB news was fairly limited for German bunds. The 10-year rate is little changed at 0.26%.

US Treasury rates are up 1-2 bps across the curve, with the 10-year rate trading within a tight 4 bps range over the past 24 hours.

The market feels like it doesn’t want to do much ahead of tonight’s employment report.

Market consensus is for a 180k lift in non-farm payrolls, a little depressed by the weather in March, and average hourly earnings slipping a touch to 2.7% y/y.

If that’s the case, the market will still be evenly split on whether the Fed will raise rates again as soon as June (the May meeting is seen as unlikely).  If the Fed is looking to change it reinvestment policy on MBS and Treasuries from late this year, then it might make sense to raise rates in June and September and then pause in December.

The local rates market has seen plenty of receiving interest from offshore investors of late, supported by the move down in global rates.

Swap rates were down 1-2 bps across the curve yesterday, with the 2-year rate at 2.27%, the 5-year rate at 2.825% and the 10-year rate at 3.34%.  In all cases, these were the lowest closes since December. 

At the longer end, it’s a reflection of US Treasury yields trading near the bottom of the range, while the shorter end of the curve has been more influenced by the expectation of a lack of RBNZ policy action over the next 12 months.

Recent increases in mortgage rates – there have been more this week – suggest that monetary conditions are tightening for some anyway, in the absence of OCR moves. 

Daily swap rates

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

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