Global bond yields are lower, driven by lower US Treasury yields.
The US 2-year rate is down to 0.86%, after reaching as high as 1% before the Fed’s Statement.
The the 10-year is down slightly to 1.89%, after hitting 1.85% earlier in the session. Germany’s 10-year rate is down 8bps to 0.23%.
If we look at the Fed Fund futures curve, the Dec-16 contract prices in a rate of 0.60%, slightly less than a full 25 bp rate hike from here. This is down 11 bps from the pre-FOMC level.
The local rates market showed declining yields across the curve in response to lower US rates. The 2-year swap rate closed the day down 4 bps at 2.25%. There was a move higher post the stronger-than-expected NZ GDP figures, but the move wasn’t sustained. The yield curve flattened, with 10-year swap down 7 bps to 3.06%.
The bond curve showed similar movement. There was strong demand for the tender of 2020 bonds, with bids of $736m for the $100m on offer. This likely reflects increasing foreign interest in NZ’s high-yielding bond market.
Interestingly, with the NZ TWI only 30 bps lower than pre-RBNZ rate cut levels and the four major banks only passing on an average 12.5 bps of the 25 bps OCR reduction for their floating mortgage rates, the pressure will go on the RBNZ to deliver another 25 bp rate cut as soon as next month. After all, if the bank is determined to get inflation higher and its rate cut hasn’t had the desired market response then why wouldn’t it?
Daily swap rates
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Jason Wong is on the BNZ Research team. All its research is available here.
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