After a horror October, with chunky rises in global bond yields, November has begun with a similar tone, with widespread increases in yields of circa 3 bps across the UK, Germany and US.
Near-term Fed policy expectations are little changed, with the OIS market pricing tomorrow’s FOMC meeting at +7bps and December is priced at +19bps. The ISM manufacturing index was strong enough to keep prospects alive for a December hike and, while the headline construction spending figure was much weaker than expected, positive revisions meant that the sector’s contribution to Q3 GDP will be revised up slightly.
The US 2-year rate is up a touch to 0.85%, while the 10-year rate is up 2bps to 1.85%, having traded as high as 1.88% earlier.
The RBA’s policy Statement saw a repeat of the final paragraph, which conveyed a neutral bias towards the policy outlook. As a few in the market expected a rate cut, this saw a slight increase in OIS yields over the coming year and a 3bps increase in the Australian 2-swap rate to 1.79%.
That announcement came after the NZ close, so higher rates, including the other offshore moves, are likely to impart a modest upside bias to the NZ curve today. In local trading yesterday, there were only small changes in rates, with the 2-year swap rate flat at 2.14% and 10-year swap +2bps to 2.85%.
Today sees the release of NZ labour market data. With a new HLFS survey, we’d suggest focusing on the unemployment rate as that is less prone to misinterpretation. The risk is a better result than the market expects, while wage inflation should show further signs of nudging higher. The RBNZ’s survey of inflation expectations is expected to continue to show low, below-target, readings.
Market attention turns to the next FOMC meeting and the Fed will publish its latest policy statement at 7am tomorrow morning. With the US Presidential election next week, it is widely anticipated that the Fed will hold off raising rates but the language should keep alive the prospect of a December hike.
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.