European rates set the tone, but focus turns to US Fed meeting decisions. Local eyes on Q2 GDP and election

By Jason Wong

US 10-year Treasury rates looked to be more influenced by the upward pressure in UK and Germany rates than the soft economic data, rising by 2 bps for the session to 2.20%, its highest close in nearly 4 weeks.

Focus this week turns to the FOMC meeting (early Thursday morning NZ time), with the Fed expected to announce the start of its balance sheet reduction programme, but more interest will lie in the new dot-plot projections of the Fed Funds rate.

There will be some downside pressure on the median “dots” with some FOMC members likely to reduce their expectation for rate hikes ahead.

Upside pressure on global rates continued to feed into the NZ curve, with the 2-year swap rate up 2 bps to 2.21% and the 10-year rate up 3 bps to 3.19%.

Apart from the usual global forces, this week the market will be interested in Q2 GDP due Thursday, ahead of Saturday’s election.

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Jason Wong is on the BNZ Research team. All its research is available here.