Another Fed official resigns. Local swap curve steepen following February MPS, but top end may be near

By Jason Wong

Despite the more positive market sentiment, the US Treasuries market traded in a very tight range.

The 10-year rate traded a 2.39-2.43% range and closed at 2.41%, close to the level prevailing at Friday’s NZ close.

Yellen and the plethora of US economic data this week will be important to watch.  They offer the chance to drive rates out of their recent ranges, but the 2.30-2.60% range for the 10-year will likely be respected until the next big shock arrives.

The Fed’s Tarullo tended his resignation from the Board of Governors and will step down in early April.  He spear-headed the Fed’s banking regulation policy.  Along with two existing vacancies on the Board, Trump now gets to fill three positions, allowing him to appoint the sort of person he wants to oversee monetary policy and banking regulations.

In local trading on Friday, it was all about offshore rate pressures, which drove the market.

There was a slight steepening of the swap curve, with the 2-year rate up 2 bps to 2.35% and the 10-year rate up 4 bps to 3.475%.  We see front end rates, such the 2yr swap, as being closer to the bottom than top end of the likely trading range in the months ahead, with limited room to rally much further now that the market has settled post the February MPS.

A 2.30-2.50% range is expected to be largely in play for the rest of 1H17.

The economic calendar today is pretty sparse, with Japan watchers likely interested in the first reading of Q4 GDP, where modest growth is expected.

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