The US 10-year rate hovered around the 2.45-2.47% mark until the headlines emerged about Powell having the inside running for the Fed Chair role. By the end of the session, the 10-year rate had fallen down to 2.41%, some 5bps below the level prevailing at the NZ close.
Safe-haven flows out of Spain and into Germany saw its 10-year rate fall 3bps to 0.38%, with the ECB’s dovish taper announcement also still in the minds of investors.
NZ rates were slightly higher on Friday, with 10-year bond and swap rates up 2 bps to 3.03% and 3.25% respectively, a reflection of the prior day’s upside to UST yields.
But the NZ-US 10-year spread continues to show a lack of risk premium for the uncertain policy outlook under the change of government and the likely much higher debt programme over coming years, likely in the order of $2-3bn per annum. At the NZ close, the NZ-US 10-year spread was just 57 bps, at the lower end of its range this year.
A TV interview with the new Finance Minister Robertson over the weekend supports our view that the market has nothing to fear about the mooted changes to the RBNZ Act.
The Bank will maintain its focus on price stability, along with being mindful of maximising employment, along the same lines at present and similar to the RBA and Fed operating frameworks. No numerical target for the unemployment rate target will be given.
In the day ahead, the local trading session should be quiet but lower US yields on Friday night will act as a downward force on the NZ curve today.
It’s a big week ahead with US employment data at the end of the week, NZ employment and wages data, and an expected BoE tightening in monetary policy the highlights.
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Jason Wong is on the BNZ Research team. All its research is available here.
2 Comments
why reserve banks globally have employment targets as a primary objective sound good in theory but in practise does it lead to asset price inflation. If it turns out that the asset price inflation we see in the DOW is the result of the fed having a dual mandate then that grand experiment of a reserve bank having an employment function will be seen as an error.
i think it has yet to be proven that reserve banks can have an effective role to play in employment and really should this not be a function of macro policy of government. The role of the reserve banks in employment may have lead to government simply not doing it job.
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