Despite all the action in commodity, equity and currency markets, the rates market was very sedate by comparison.
The US 2-year rate nudged a bit higher, up 2 bps to 0.76%, following on from the increase post Friday’s stronger-than-expected US CPI result.
The US 10-year rate has traded in a tight 4bp range overnight and is currently up 1 bp at 1.76%.
The risk of Brexit, while significantly impacting GBP, is not having much impact on the UK bond market. The 10-year Gilt fell by 2 bps to 1.39%, following the 3 bps fall on Friday.
There wasn’t a lot of movement in NZ rates in yesterday’s trading session, following little movement in the previous US session.
The 2-year and 10-year swap rate were both up 1 bp to 2.50% and 3.18% respectively.
There remains decent offshore interest to receive the Kiwi short end, as those investors believe that another rate cut by the RBNZ is inevitable.
It’s a simple story really, with the strong NZD keeping monetary conditions tight amidst falling NZ commodity prices and inflation expectations, and a lack of conviction that inflation will recover as the RBNZ expects.
This prevailing view will form a cap of sorts on the 2-year over coming weeks.
Coming Up
There’s nothing worth noting scheduled for NZ trading hours today. Tonight we’ll be keeping a close eye on Fed vice-chair Fischer to see if he makes anything of the recent uptick in US wage and CPI inflation. With better market sentiment last week and this week, there’s a chance for a more hawkish interpretation of the current outlook for US monetary policy, which would be USD positive at the margin.
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