US focus on Fed dot plot. US Fed membership to get more hawish. NZ 10yr swap at 6 week high

By Jason Wong

US Treasury yields continue to trend higher after bottoming out a couple of weeks ago.

The 10-year rate is up 1 bp to 2.24%, while the 2-year rate is flat at 1.40%.

Ahead of the FOMC meeting, the market sees a slightly better than even chance of a Fed hike by December and a cumulative 1½ hikes by the end of next year, still well below the 4 hikes projected by the median FOMC member as indicated by the last set of “dotplots”.  The market seems fixated by how the dotplot might change, but it’s really just an academic exercise and forthcoming economic data will continue to guide the Fed’s decisions. 

The annual rotation sees a slightly more hawkish set of voters next year, there could well be a new Fed chair at the helm and there are still a number of vacant positions on the Board to be filled. 

Higher global rates continue to spill over onto the NZ yield curve.

The 2-year swap rate closed up 1 bp 2.24% while the 10-year rate closed up 2 bps to 3.26%, the latter reaching a 6-week high.

It should be another quiet session today, ahead of the Fed, and NZ current account data shouldn’t cause any notable reaction.

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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