Local rates will meander sideways until next Government is revealed. US Fed decision awaits US CPI reading, most analysts expect a December rise

By Doug Steel

US 10 year Treasury yields eased in the first session after Monday’s US holiday. From Friday’s close around 2.36%, 10-year yields fell as far as 2.32% on tax plan concerns before finding some support to currently sit around 2.34%.

It is all within a range, ahead of the minutes from the September 20 meeting and no less than three Fed speakers in the next 24 hours.

The minutes may provide more context to the forecast adjustments made at that meeting including stronger economic growth, an unemployment rate pushing further below what is considered normal, and a longer timeframe to achieve the Fed’s inflation objective. The meeting also supported the idea of a December hike.

The speakers will be able to give their timelier assessments, post-hurricanes and post-payrolls with a likely mix of views on offer.

Market pricing currently suggests a near 80% chance of a hike by December. But Friday’s US CPI might carry the most weight of all, with expectations that inflation will lift.

There was again very little movement in local interest rates, with swap rates pushing marginally higher across the curve with a mild steepening bias.

It was a similar story for NZGB yields.

But really, the local rates market looks like going nowhere ahead of the formation of the next government.

Next week’s Q3 CPI data is also coming into view.

Doug Steel is a senior economist at BNZ Markets. All its research is available here.