10-year US treasury yields continue their rise which should flow through to local markets today. Local market in wait-and-see mode

By Jason Wong

The US bond market is under some pressure.

One could argue that this is either a delayed reaction to the strong jobs number on Friday night or the market believing that yields had fallen by enough over recent weeks. The 2-year Treasury rate is up 5 bps to 0.66% while the 10-year rate is up 7 bps to 1.43%, following a steady climb up throughout the trading session.

US FOMC members will be giving 14 different speeches this week. The most hawkish member, Esther George, advocated interest rate increases, encouraged by the rebound in employment. She has dissented at two of the committee’s four meetings this year in favour of higher rates and her views should be seen in that context. 

OIS pricing for the probability of the Fed raising rates before the end of the year has nudged up a bit, from 24% to 32%.

NZ interest rates showed little change yesterday across the curve.  Little trading activity took place, with one trader describing that it felt like a Sunday.

The 2-year swap rate of 2.23% is close to the middle of the 2.10-2.40% range we anticipate for the months ahead.

Following the sharp move in short-term rates in response to the RBNZ’s housing market speech on Thursday night, traders had little appetite to take on fresh positions.  The RBNZ took the unusual step of pre-announcing that another speech on Wednesday would “not include discussion or guidance about forthcoming OCR decisions by the Reserve Bank”.  It highlights the level of frustration by the Bank, with its key messages not getting through and might have been in response to the market reaction to Thursday’s speech.  The advisory about the speech contents (or lack thereof) opens up more speculation about whether or not the Bank is happy with current market pricing.  The August meeting is currently priced at a 36% chance of a 25 bps cut.

There’s little data today to drive the rates market, but expect a shift up in yields on the open, reflecting the offshore moves overnight.