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

US Treasuries sold off on Fed's upbeat view of US economy

Bonds
US Treasuries sold off on Fed's upbeat view of US economy

by Kymberly Martin

NZ swap yields followed their offshore counterparts, higher yesterday. Overnight, US yields convincingly broke higher, out of their recent ranges.

NZ swap yields got a good nudge higher yesterday, following the sell-off in US bonds, after the US Federal Reserve meeting. Yields closed 2 -7 bps higher across the curve.

The curve steepened notably, driven by mid to long end paying interest from what looks like a few chunky corporate and local authority flows. The 2 -year yield closed at 3.07%, and appears to be still quite contained in its 2.95% - 3.10% range, for now.

However, 10 - year swap yields closed 7bps higher at 4.47%.taking the 2s - 10s curve back up to 140bps. We think a steepening bias remains, as the short-end continues to be tied by expectations of little action from the RBNZ in the year ahead. The longer-end however, will likely follow US yields higher.

Overnight, US 10 -year yields convincingly broke out of their recent tight range, trading up from 2.12% to 2.26%. The bond market continued to absorb the more upbeat economic assessment by the Federal Reserve, and hence less chance of further quantitative easing. German 10 -year yields were also dragged up from 1.88% to 1.96%.

The moves in NZ bond yields were less dramatic than for swaps, but still in the same direction. the curve closed up 2 - 4bps. The DMO announced a fairly substantial tender today of 300m of 17s and 100m of 19s, so demand must be seen to be picking up.

Expect NZ long-end yields to open up today. The curve should face continued steepening pressure today. We see the 2s - 10s swap curve moving back toward 160bps in coming months, a level we consider to be closer to “fair” based on fundamentals.

No chart with that title exists.

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.