The US 10-year yield rose from 2.48% to 2.52% on the back of the stronger US CPI and retail sales data, but has since slipped back down to trade around 2.50%.
This is about 2 bps above the level prevailing at the NZ close.
Despite the stronger tone to inflation and activity data and the now good prospect of the Fed actually delivering on its expected three rate hikes this year, market positioning remains short and that is limiting the upside to yields. So the 2.30-2.60% range remains secure for now. Trump’s “phenomenal” tax reform package due to 2-3 weeks remains on the radar.
In local trading yesterday there was upward pressure across the curve due to global forces.
The 2-year swap rate was up 2 bps to 2.37% while the 10-year swap rate rose by 5 bps to 3.54%.
Short end rates should remain tightly bound for now, given the RBNZ’s clear messaging last week on keeping rates steady.
The market won’t want to test that view so soon after the Statement, but ultimately the pressure for higher rates is expected to remain in the face of the global reflation trade and signs that the NZ economy is going down a similar path.
Daily swap rates
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Jason Wong is on the BNZ Research team. All its research is available here.
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