In the rates market, US 10-year Treasury yields showed further upside, with much of the movement coming after the NZ close, up to a high of 2.36% last evening.
Since then, yields have tracked lower and they current sit at 2.31%, down about 1 bp from the NZ close.
There has been no obvious news to drive the turnaround, and it might just reflect some profit-taking after a strong run-up in rates. We might need to see some fresh inflation-unfriendly news before the market is willing to take rates up another leg from here.
The NZ rates market didn’t show much reaction to the RBNZ OCR review. The 2-year swap rate closed the day flat at 2.21% and the 10-year swap rate was up 5 bps to 3.26%, with the movement in the long end largely reflecting the upside to global rates in the previous overnight session.
The rates curve shows that the first RBNZ hiking is priced in by November 2018. While this is slightly later than BNZ’s pick of August, these dates are still in the distant future and will likely keep the short end of the curve well anchored for some time. Market expectations assume little change to the Policy Targets Agreement and that the new Governor from March next year doesn’t throw a curveball.
The calendar ahead is action-packed.
Focus will turn to the inflation indicators for the euro area and the US tonight. US CPI data previously released imply a slight uptick in the PCE deflators. Draghi and Carney will be talking at the BoE’s conference, which continues tonight.
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Jason Wong is on the BNZ Research team. All its research is available here.
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