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Market looking for hints on QE III from US Fed announcement

Bonds
Market looking for hints on QE III from US Fed announcement

by Kymberly Martin

NZ yields slipped lower yesterday, by around 3bps on the swap curve and 6bps on the bond curve.

NZ bond yields fell in line with quite an aggressive rally in Australian bonds. As the market absorbed the weekend news of China’s large trade deficit, and the Greek default, there was renewed demand for relatively “safe” Government bonds.

Australian 10-year bond yields declined around 6bps and NZ equivalents by a similar magnitude. NZ - AU 10-year bond spreads remain around 12bps, suggesting there is room for NZ bonds to outperform AU equivalents.

NZ swap yields slipped around 3bps across the curve yesterday. 2 -year closed at 3.01%. The market continues to price around 16bps of RBNZ rate hikes in the year ahead. There is support for 2 -year swap rates at the 2.96% level. Resistance is seen at 3.12%.

Overnight, demand for “safe haven” US and German bonds remained fairly solid. The market remains cautious of the implications of the Greek deal for the region. It also remains in “wait and see” mode ahead of today’s US Federal Reserve meeting.

US 10-year yields traded around the familiar 2.02% level. German equivalents have subsided back toward their all - time lows, below 1.76%.

Today, the Bank of Japan announces rates. At its February meeting it surprised the market by announcing additional quantitative easing measures. Today it is expected to reiterate its current position.

Early tomorrow morning, all eyes will be on the US Federal Reserve as it announces its rate decision. No change from its 0 - 0.25% band is expected. It will likely acknowledge some continued improvement in US data.

The market will be looking for hints of QEIII, though we do not expect any.

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