Global bond yields are weaker across the world, a reflection of the weaker risk appetite environment.
German 10-year bond yields were up as much as 5 bps as higher France and Spain CPI data were released, but then despite a higher euro-area CPI print, global forces took over, seeing yields end back down to a roughly unchanged 0.43% level.
US Treasury yields are lower across the curve, although falls have been modest, in the vicinity of 2-4 bps. The 10-year rate trades down 4bps at 2.45%. The soft activity and wage inflation data have seen a slight toning down of rate hike expectations. For the year, just under two full rate hikes are now priced.
We suspect that tomorrow’s FOMC announcement will be a bit of a non-event, with little change expected from the December Statement. The Fed will want to keep its options open as it looks to raise rates three times this year. The messaging of a gradual tightening pace, dependent on upcoming data, should prevail. Ahead of that announcement, ISM and ADP employment data are released.
In local trading yesterday we saw a downward bias to rates, a reflection of global trends.
Swap rates were down in the order of 1-2 bps, with the 2-year rate closing at 2.45% and the 10-year rate at 3.59%. NZ’s 10-year government bond rate fell by 5 bps to 3.36%.
A slight downside bias to rates should prevail today, although the short end might get dictated by labour market data due this morning. We expect data to show ongoing evidence of a tight labour market. More interest lies in whether that will finally be reflected in wage inflation, which to date has been well-behaved.
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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