Long end yields rise sharply after MPS adds to surprise DMO delay earlier. More rises not expected. Focus shifts to Aussie MPS

By Jason Wong

In the rates market, European bonds sold-off as the post-ECB meeting move that took rates a lot lower was seen to be overdone.

Germany’s 10-year rate rose by 5 bps to 0.37%.

The sell-off saw the US 10-year rate climb to just over 2.34%, but since then the risk-off move has seen a retracement of yields back down to 2.32%.

The local rates market was active after the RBNZ MPS.  There was more price action in the longer end than short end of the curve.

The 2-year swap rate rose by 2 bps to 2.21% as the Bank ever so slightly nudged forward the expected timing of the first rate hike.  OIS pricing suggests that the first rate hike is now fully priced by November 2018 compared to February 2019 previously. 

The lifting of the inflation dial and slightly more hawkish tilt from the RBNZ got the attention of corporate payers looking further ahead.  The 5 and 10-year swap rates rose by 7 bps to 2.70% and 3.19% respectively. 

The NZ 10-year bond rate rose by 8 bps to 2.93% taking the 3-day move to 18 bps, after the liquidity hole seen after Monday’s DMO announcement.  It’s fair to say that the next week will be a lot calmer in the local bond market.

The focus in the day ahead will be on the RBA’s Statement on Monetary Policy where a few tweaks will be made to its economic forecasts, but shouldn’t add much more value than that after Tuesday’s on-hold policy decision.

The US Veteran Day’s holiday should make for a quiet end to the week.

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

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