US Fed signals push UST yields down. More downward pressure expected on NZ yields today. Eyes now on NZ Q4 GDP

By Kymberly Martin

The NZ swap curve flattened a little further yesterday as the long-end of the curve took its cue from offshore moves.

US yields slumped after the US FOMC meeting.

NZ 2-year swap showed minimal response to yesterday morning’s soft GDT dairy auction. It closed down 1bps on the day at 3.55%.

The long-end of the curve took its cue from the continued slump in US long yields. NZ 10-year swap closed down 2 bps, at 3.79%.

Overnight, the Bank of England released the Minutes of its last meeting. It showed the nine members voted unanimously to keep the benchmark rate at 0.5%, though for two the decision was “finely balanced”. The market prices around a 50% chance the BoE will raise rates by this time next year.

Elsewhere in Europe, The Swedish Riksbank cut interest rates further into negative territory, from -0.1% to -0.25%. Norges Bank is expected by consensus to be the next central bank to cut rates, from 1.25% to 1.00%, at its meeting tonight. German 10-year bond yields fell from evening highs of 0.28% back toward historic lows, below 0.20%.

Ahead of the US FOMC meeting, US 10-year yields drifted to early morning lows approaching 2.01% before rebounding to trade at 2.05% ahead of the meeting.

The Fed removed the word “patient” from its statement as expected but went as far as to explicitly say a hike at the April meeting “remains unlikely”.

Overall, the Fed did not sound in a rush to raise rates as it suggested growth had moderated somewhat since its last statement and export growth weakened.

US yields fell across the board. US 2-year yields fell from 0.67% to 0.60% while 10-year fell from 2.05% to 1.99%. Fed fund futures for December have dropped to 0.45% from 0.52% prior to the meeting.

The moves will exert some downward pressure on NZ yields today, especially at the long-end of the curve.

Now all eyes on NZ Q4 GDP.