NZ 2yr swap rates down 1bps to 2.425% and 10yr rates down 2.5bps to 3.595%; UST 10yr yields up 2bps to 2.56%, trading in the 2.54%-2.59% range; German 10yr yields up 2bps to 0.27%

By Jason Wong

In quiet markets, with little economic news, global bond yields have ticked up, reversing much of the previous day’s declines.  US 10-year Treasuries have traded in a 2.54%-2.59% range and currently sit up 2bps at 2.56%.  Germany’s 10 year rate is up 2bps to 0.27%.

After yesterday's report, Fed Chair Yellen gave an upbeat speech on the US labour market, resulting in a mild sell-off of US Treasuries, but that was followed by a terrorist attack in Germany, seeing rates fall again. Since then, rates have tracked a little higher. There is not much on the global economic calendar over the next 24 hours, so another quiet trading session should ensue. There's a range of economic data later this week, including the core PCE deflator, durable goods orders, and personal income and spending data.

We see US Treasury rates in a consolidation phase over coming weeks, and maybe months. Just over two full rate hikes are priced into the curve, the 10-year rate is less than 50bps away from the Fed's projected long-term equilibrium rate, and the market is significantly short Treasuries. All these combine to suggest that it'll take a lot more negative bond market news to push Treasuries into a higher trading range.

In local trading yesterday we saw a downward bias to rates across the curve, a reflection of global forces. There should be an element of reversal in today's trading. The 2-year swap rate fell by 1bp to 2.425% while the 10-year rate fell by 2.5bps to 3.595%. Migration and trade balance today are unlikely to have an impact on the market. Thursday's Q3 GDP release will be the last local event of interest this year and a robust outcome is the most likely result, but this should already be largely priced into the curve.

Jason Wong is on the BNZ Research team. All its research is available here.