US rates fell after Yellen’s speech. After being up as high as 2.52%, the US 10-year rate closed flat at 2.48%, around the same level as the NZ close.
Bond traders might be relieved that the Fed is showing more intent to raise rates and getting on top on a potential inflation problem.
Yellen mentioned that she doesn’t think that the Fed is behind the curve and bond investors could well be concluding the same. If that’s the case then US10s could remain in the well-established 2.30-2.60% trading range for a while longer yet, even in the face of higher short term rates.
On Friday, NZ’s swap curve barely moved, with 2-year and 10-year rates closing unchanged at 2.345% and 3.54% respectively.
Government bond rates showed more movement, with the 10-year rate down 3 bps to 3.295%. The NZ DMO announced that it had issued $1.5 billion of new 2040 inflation-indexed bonds via syndication at a real yield of 2.69%. The deal attracted over $2.4 billion of bids.
Yesterday China’s government outlined its economic objectives for the year ahead with a growth target of “around 6.5, or higher if possible”. This represents a downgrade from the previous target range of 6.5-7.0%, but the market expected such a softening. The RMB exchange rate will be “further liberalised, and the currency’s stable position in the global monetary system will be maintained”.
The day ahead is expected to be fairly quiet, with few economic releases of note and fairly steady rates.
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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