In the bond market there has been slightly more reaction to European rates than US rates from the rising geo-political tension.
UK and Germany 10-year government rates were down by 5 bps to 1.11% and 0.42% respectively.
The US 10-year Treasury rate dipped to as low as 2.21%, slightly below the level prevailing before last Friday’s strong non-farm payrolls report. Yields have since ticked higher to 2.24%, not helped by a soft bond tender, and are currently near the NZ close.
Lower global rates through the local session helped dragged down NZ rates, with the 2-year swap rate down 1 bp to 2.16%, a fresh low for the year while the 5-year rate joined in that milestone, falling 2 bps to 2.63%.
Rates have already tracked lower – some 7 bps for the 2-year rate over the past couple of weeks – in anticipation of a more dovish tone from the MPS today, leaving not much opportunity for further rate reductions even if those expectations are met.
We expect Governor Wheeler to play with a straight bat today in his final showing as Governor, running with a similar tone adopted all year.
We expect little change to the key final paragraph in the press statement. “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly”.
The underlying message will be that the RBNZ is in no hurry to join some other major central banks in looking to remove policy accommodation.