The risk-on sentiment is seeing bond markets struggle, with rates higher across the board.
Germany’s 10-year rate has risen by 14 bps to 0.38% since the French election as hedges put on before the election are unwound.
US Treasury rates are 4-5 bps higher across the curve for the day, taking the 10-year rate up to 2.33%. Relative to the NZ close on Monday, UST10s are up about 2 bps in yield, which should restrain the impact on local rates today.
One of the themes last week was Fed speakers maintaining their view that despite some softer US data, the outlook for monetary policy hadn’t changed. So higher US rates are not just about the positive global risk sentiment – the market is wondering whether the recent rally in US bond prices was overdone, based on the dataflow.
Fed funds futures suggest that the probability of a Fed hike in June is back to about 70%, while 36 bps of hikes are priced into the curve for the rest of the year. This got to as low as 25 bps late last week.
This, of course, all feeds into the local curve. By month-end we could well find ourselves back in the middle of the familiar ranges seen so far this year.
Daily swap rates
Select chart tabs
Jason Wong is on the BNZ Research team. All its research is available here.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.