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Markets expect a +25 bps US Fed rate hike tomorrow but unsure of whether two or three more will follow in 2018. Local rates slipped

Bonds
Markets expect a +25 bps US Fed rate hike tomorrow but unsure of whether two or three more will follow in 2018. Local rates slipped

By Jason Wong

US Treasury rates are slightly higher across the curve, with the 10-year rate up 2 bps to 2.88%, around the middle of the 2.80-2.95% range it has traded over the past month.

The market fully prices a 25 bp hike from the Fed this time tomorrow morning.

A Bloomberg survey showed that economists expect the Fed to raise rates four times this year but that the Fed’s updated forecasts will still only show three hikes at this stage.  For 2018, current market pricing is more in line with the Fed’s 3-hikes view at this stage, but that likely reflects a discount for some major risk event that prevents the market from wanting to fully price in a rate hike every quarter this year, at this juncture.

Yesterday, NZ rates were down about 2 bps across the swaps and government curve.  We expect a typically quiet trading session today ahead of the FOMC.


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Daily swap rates

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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA
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Source: NZFMA

BNZ Markets research is available here.

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