sign up log in
Want to go ad-free? Find out how, here.

NZ rates fell modestly. Eyes now on AU CPI, but no smoking gun expected for easing expected. US rates expected to range-trade given speculative positioning

Bonds
NZ rates fell modestly. Eyes now on AU CPI, but no smoking gun expected for easing expected. US rates expected to range-trade given speculative positioning

By Jason Wong

Global 10-year bond yields have ticked up by 4-5 bps across the key European markets and the US, reversing some of the falls seen in the previous session. 

This has been attributed to increased government bond supply, with a wave of syndicated deals including a French 20-year maturity, a Spanish 10-year and a UK 40-year. 

Markit PMI manufacturing data were stronger than expected for the US and the euro area, led by Germany.  However, the euro-area services PMI was on the softer side.

The US yield curve has shown a bias to steepen, with the 2-year Treasury rate up 3 bps to 1.17% and the 10-year rate up 5 bps to 2.45%.  The general mood in the bond market remains one of consolidation.

Speculative accounts are heavily short 10-year Treasuries, so the data flow needs to really kick up a gear to see the 10-year rate track back up to 2.60% and beyond.  This level is likely to be tested later in the year.  But for now the path of least resistance in the short term is to range-trade, with a bias to test the downside of the range this year, which sits closer to 2.30%.

NZ rates showed a downside bias yesterday, a reflection of the global forces in the previous session, however falls were modest, a reflection of the payside pressure in the market that continues to prevail. The 2-year swap rate closed down just 1.5bps to 2.415% while the 10-year rate fell by 2.5bps to 3.475%.

The key release today is Australia’s Q4 CPI data.  The data should show an oil price-induced lift in headline inflation.  Core inflation is expected to be 0.5% qoq, which is in the middle of the RBA’s 2-3% target range when annualised.  Certainly, no smoking gun for further RBA easing this year, if that’s the case. 

NZ CPI data are released on Thursday which is the key local event this week and one of great importance to the local policy outlook in the absence of any guidance from the RBNZ of late.

Daily swap rates

Select chart tabs

Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA
Opening daily rate
Source: NZFMA


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.