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ECB to sit pat. Fed speakers sing similar tunes. Local rates firm ahead of inflation clues. Offshore markets eye some important data signals

Bonds
ECB to sit pat. Fed speakers sing similar tunes. Local rates firm ahead of inflation clues. Offshore markets eye some important data signals

By Doug Steel

US 10-year Treasury yields ground steadily lower overnight, to be down about 3 bps at around 2.39%. The was broadly in line with movements in longer term European yields, including 10-year UK Gilt and German Bund yields both fell just over 4 bps as reports suggesting the ECB will not alter its messaging in April.

Global yields pushed lower despite a rise in oil prices. Oil prices are up circa 2%, as figures show US crude stocks increased less than expected and fuel stocks posted a larger decline than anticipated. WTI crude has punched back above US$49/bbl mark for the first time in over a week.

There was again plenty of Fed speak, this time from Evans, Rosengren, and Williams. In short, Evans sees one or two more hikes this year, Rosengren likes a hike at every other meeting implying a total of four hikes in 2017, while Williams shares the FOMC’s three hike plan although noted more than three is possible given upside risks. But for all the Fed talk this week pricing remains much the same with little chance of a hike priced in May and about a 50/50 chance of a hike at the 14 June meeting.

Local yields pushed higher across the curve yesterday, with a steepening bias, following moves in the previous offshore session. NZ 10-year swap rose 4.5 bps to 3.46% and NZ 5-year swap rose just over 3 bps to 2.94%. NZ 2-year swap rose 2 bp to close at 2.335%, as the short end remains comparatively anchored by expectations for local policy.

Market pricing for NZ’s OCR remains steady. Current market pricing shows a third of a chance of a 25 bp hike in the OCR by November this year, with a full hike almost fully priced by March next year. This has been reasonably steady for some time, with local attention honing in on NZ Q1 CPI due 20 April to provide direction. But, ahead of that, the inflation gauges in tomorrow’s ANZ business survey and next week’s QSBO will be worth a look.

It is part of some grunt finally coming back into the economic calendar that starts overnight with Germany’s CPI and US GDP. It is worth watching the US jobless claims as well to see if they lunge lower as recently very strong consumer confidence suggest they might at some point.

But most data focus will be tomorrow with US income, spending and PCE deflator, UK GDP, EU CPI and Chinese PMIs to evaluate. Before that, it looks like being another quiet local session.

Daily swap rates

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

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