Fed speakers offer varied opinions but no clear steer.  UST 10yr weakens and flattens all within settled range. Local rates to follow lower

By Doug Steel

Overnight, we had a trio of Fed comments which highlighted the various opinions within the Fed rather than giving any clear steer to the timing of the next hike.

First was Kashkari noting in an interview that ‘we do not have a high-inflation threat right around the corner’ so ‘what’s the rush to raise rates.’ The Minneapolis Fed chief was the sole dissenter to the Fed’s March rate hike.

In contrast, Chicago Fed President Evans in discussing the outlook for Fed hikes this year suggested that “It could be three, it could be two, it could be four if things really pick up.”

Interestingly, Evans indicated the Fed could tolerate 2.5% inflation for a time and still be consistent with the Fed’s goal.

Meanwhile, Philadelphia Fed President Harker said he can’t rule out more than three rate increases this year. Dudley speaks overnight tonight. Fed pricing remains around 50/50 for a 25bp hike in June with around 40bps priced in by the end of the year.

US 10-year Treasury were again lower across the curve, with a slight flattening bias, with the 2-year rate down 2 bps to around 1.29% and the 10-year rate down more than 3 bps to 2.47%. The latter continues a move lower following a brief push above 2.60% before the Fed rate hike last week.

The 10-year rate is now well settled back into the familiar 2.30-2.60% range.

NZ rates moved lower yesterday taking directional cues from the previous offshore session. NZ 2-year swap yields closed down about 2 bps at 2.28%, making fresh year-to-date lows in the process as the market awaits Thursday’s RBNZ OCR review where no change is expected but with focus on the commentary.

There was a slightly flattening bias to NZ’s curve yesterday, as NZ 5-year and 10-swap yields both fell 4.5 bps, a little more than the 2-year move.

NZ yields are likely to face some further mild downward pressure initially today, given offshore moves.

Daily swap rates

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

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1 Comments

Wow thank God our RBNZ technocrats have more between their ears than some members of the fed , like Kashkari..

Its an interesting comment from Fed , so just because there is no inflation risk , the value of a factor of production should be close to zero?

Since when is a unit of currency's sole value derived from inflation ?

By printing money through QE they have effectively debased the value of money , and this seems wrong

Maybe land and labour should also cost "close the zero" ?

Money cannot have no value as a store of wealth , because if it does have no value , why store the stuff?