Markets no longer expecting a September rate hike from the US Fed, changing their expectations to December

By Kymberly Martin

NZ curves steepened yesterday.

US 10-year yields made intra-night highs of 2.20%.

NZ yields initially pushed 5-10 bps higher at the open as they took their cue from the previous night’s moves offshore.

However the moves at the short-end of the curve proved short-lived. Receiving at the short-end saw 2-year swap actually close down 2 bps on the day, at 2.80%. The improvement in sentiment offshore and rally in Asian equity markets ensured that upward pressure remained on the long-end of the curve.

Overall the 2-10s swap curve steepened by around 6 bps on the day, to 78 bps. Through to year-end we remain of the view the curve will steepen within a 60-115 bps range. However, near-term fluctuations will be highly dependent on moves in US 10-year yields.

Given the backup in global yields, yesterday’s NZDMO tender of NZ$200m of NZGB2020s went fairly well. It attracted a solid 3x bid-cover ratio. The bonds were sold at an average successful yield of 2.67% and later closed at 2.66%.

Overnight, following the upward revision to US Q2 GDP, US yields pushed higher. US 10-year yields pushed above 2.20%. However, the moves were not sustained. After an auction of US 7-year Treasuries attracted solid demand, US 10-year yields have traded back down to 2.16%.

We now see US 10-year yields trading in a range up to 2.50% this year. Previously we saw the top of this range at 2.75%. Contributing to this adjustment has been a formal change to our view on the Fed funds rate. We now expect the US Federal Reserve to wait until Dec before raising rates, whereas previously we thought they would pull the trigger in Sept.

Today there are no domestic data releases scheduled, so Asian equity markets will once again be the place to look for a driver of broader sentiment.


Kymberly Martin is on the BNZ Research team. All its research is available here.

Daily swap rates

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