European bond yields are lower, with Germany’s 10-year rate down 3 bps to 0.37%.
Going against the grain, UST yields are higher across the curve, unwinding some of the fall seen after Friday’s weak US CPI release.
The partial unwind followed Fed Chair Yellen’s comments on Sunday that implied the weak inflation result hadn’t changed her expectation of inflation picking up or policy outlook.
The US 2-year rate is up by 3 bps to 1.525%, while the 10-year rate is up by 2 bps to 2.295% relative to last week’s close, and less than 1 bp higher relative to the NZ close yesterday.
NZ rates were lower yesterday, reflecting the post US CPI move in US Treasuries on Friday night. The 2-year swap rate fell by 1 bp to 2.19%, while the 10-year rate fell by 4 bps to 3.20%.
Today sees NZ Q3 CPI data released. We (and the market) think inflation is tracking ahead of the RBNZ’s projections, driven by higher food and oil prices, so a result around 0.4% q/q (0.2 percentage points above the RBNZ’s estimate) shouldn’t be market moving.
We need to see core inflation measures move a lot higher to get the RBNZ’s attention, which will likely take more time.
UK CPI data tonight should reinforce market expectations for a BoE rate hike next month.
After a much weaker than expected GDT dairy auction last fortnight we’ll be interested to see if that was simply the result of the China Golden Week holidays, or something more fundamental. A flat result would leave downside risk around our milk price forecast of $6.75 for this season.