Fed Chair position in play, UST yields slightly lower with more short positions being added, eyes on ADP employment report

By Jason Wong

In overnight news, Fed Governor Powell spoke on regulatory issues and declined to comment on reports he has had discussions on the role of the Fed Chair position.

Politico reports that sources close to the Fed Chair selection process confirm that Kevin Warsh and Jerome Powell are the current front-runners with Treasury Secretary Mnuchin said to be favouring Powell.  Warsh’s monetary policy bias is seen to be hawkish while Powell is seen to be neutral.

US bond yields are slightly lower across the curve, going against the grain of a tick or two of upside for European yields.  After its push higher from early September, the US 10-year rate is meeting some significant resistance near the 2.35% mark and it is currently down 1bp to 2.33%. 

A JPMorgan survey for the week through Oct. 2 found that their clients added to short positions in US Treasuries, with 44% holding a short position relative to their benchmark, the most since 2006.  This will make it tough for rates to push higher unless we get signs of higher inflation, much better activity data, or more confidence that Trump’s tax reform plan will push forward. 

Yesterday, the NZ rates market showed little movement, with yields flat to down 1 bp right across the curve.  With Australian 10-year futures and US 10-year rates showing yields down about 2 bps from the NZ close, the bias for NZ will be flat to slightly lower yields today.

Tonight sees US ADP employment released, which is expected to be negatively impacted by Hurricane Harvey, while the US ISM non-manufacturing index is expected to tick higher.

Daily swap rates

Select chart tabs »
The '1 year %' chart will be drawn here.
Loading...
Opening daily rate
Source: Westpac
The '2 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: Westpac
The '3 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: Westpac
The '4 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: Westpac
The '5 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: Westpac
The '7 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: Westpac
The '10 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: Westpac

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

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a 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.