Eyes on US employment data, but S&P warns on US debt ceiling brinkmanship. Risk aversion eases. Local rates 'void of broad direction'

By Doug Steel

US 10 year Treasury yields pushed up through 2.15% on the stronger US data, before easing back. Yields currently sit around 2.14%, up 1 bp on the day.

As we suspected, there were few details in Trump’s speech on tax reform.

S&P’s Chief Economist pointed out overnight, ‘Failure to raise the debt limit would likely be more catastrophic to the economy than the 2008 failure of Lehman Brothers’, adding that ‘a government shutdown would shave 0.2 percentage points off real GDP for each week it continues’. The US debt limit is ultimately expected to be lifted, but it remains a major tail risk, and will remain in focus over the coming month.

Yesterday, NZ yields essentially reversed the previous day’s missile-induced declines and undid the curve flattening. NZ 2-year swap rose 2 bps to just under 2.19%, NZ 5-year increased 3.5 bps to 2.645% and NZ 10-swap added a touch over 3 bps to 3.12%.

The broad move higher was persistent through the day, uninterrupted by the afternoon RBNZ speech. But really, the local rates market remains void of broad direction.

There is a lot of data due over the coming 24 hours, with most focus likely on the ANZ business survey and Chinese PMIs. The other global data all looks to be a curtain-raiser to the important US ISM and payrolls data on Friday.

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Doug Steel is a senior economist at BNZ Markets. All its research is available here.