Despite the more hawkish overtones from Fed speakers, US Treasury rates were lower across the curve, perhaps a reflection of slightly weaker equity markets.
At the time of writing the S&P500 is down 0.4%. The 2-year Treasury rate is down 3bps at 0.86% and the 10-year rate is down 5bps at 1.89%.
The Dec-16 Fed Funds contract is priced at a yield of 0.63%, implying only one full 25bp rate hike is priced in by year-end.
Yesterday, the local rates market took its cue from offshore trading in the previous session and this resulted in higher yields across the curve.
Further curve steepening was evident, with 2-year swap up 2bps to 2.26% and 10-year swap up 7bps to 3.10%.
We expect some consolidation in the 2s10s spread, but the yield curve to ultimately steepen further by year-end, driven by higher US long bond rates.
Today the DMO will auction $100m of NZGB2033s. This follows last week’s strong auction of NZGB2020s that attracted a bid-cover ratio of 7.4x. We expect solid demand today, which should help support longer-dated swap-bond spreads at the bottom of expected ranges i.e. 10-40bps for 10-year spreads.
Daily swap rates
Select chart tabs
Jason Wong is on the BNZ Research team. All its research is available here.
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.