Global rates are slightly higher overnight, led by the UK.
The prospect for any further easing of monetary policy in the UK diminished after the Bank of England moved from an easing to a neutral bias. Governor Carney said that “…monetary policy can respond in either direction to changes to the economic outlook as they unfold”. The BoE now sees CPI inflation rising above the 2% target early next year and staying above that level right through its forecast period, moving as high as 2.5% by the end of 2019.
The UK 10-year gilt rose by 3 bps to 1.20% and Germany’s 10-year rate showed the same increase to 0.16%.
US Treasuries have traded in a fairly tight range, with traders keeping their books tidy ahead of tonight’s non-farm payrolls release and with one eye on the US Presidential election next week. There has been a mild curve steepening, with the 2-year rate down 1 bp to 0.81% and the 10-year rate up 1 bp to 1.81%.
It’s fair to say that there was little overall reaction to yesterday’s FOMC meeting. A 73% chance of a December rate hike is priced in, close to where it has been tracking over recent weeks. The US non-manufacturing ISM was a little weaker than market expectations, but the series has been whippy of late and it remains strong enough to keep the Fed in play. Tonight, the market expects a 175k gain in non-farm payrolls in the October release. The data would have to seriously disappoint to throw the Fed off track for a December hike.
Yesterday saw modest falls in NZ rates, with the 2-year swap rate down 1 bp to 2.175% and the 10-year rate down 2 bps to 2.86%. The OIS curve suggests only one more NZ rate cut is likely. After next week’s widely anticipated 25 bps cut to the OCR the 1.75% level is seen to be the low, with next to zero chance of a further cut priced in.
Today’s RBA Statement on Monetary shouldn’t be market moving, with the RBA indicating earlier in the week that the bank’s “…forecasts for output growth and inflation are little changed from those of three months ago.
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Jason Wong is on the BNZ Research team. All its research is available here.
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