Global bond yields are lower overnight, led by a fall in European rates.
Germany's 10-year government bond yield is down 3 bps to 0.34%. The market is looking towards the ECB's policy meeting tonight. Expectations are centred on the ECB extending its EUR80 bln per month asset purchase program by another six months beyond the current expiry date of March 2017. The market is not positioned for a surprise “tapering” announcement, which would see the market reacting by pushing bond yields higher.
The tailwind from European markets and a lack of other news saw modest falls in US Treasury yields. The 10-year rate is down 4 bps to 2.35%.
The market has shown signs of consolidation over the past few weeks, after the significant sell-off. We expect this dynamic to remain in place ahead of next Thursday's FOMC meeting.
Australian interest rates fell after the weak GDP release. 3-year and 10-year bond futures have rallied by about 7-8 bps since that announcement and the market sees a slightly increased chance of the RBA easing next year. About 7 bps of easing is priced into the curve by mid-2017, suggesting about a 30% chance of the RBA cutting rates by then.
There was little change in NZ's swap curve yesterday, with rates closing within 1 bps of the previous close. The announcement of a new PM next week is unlikely to affect the market. Rates at the longer end of the curve will likely closely follow global trends ahead the next big domestic economic release, which is Q3 GDP data a few days before Christmas.
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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