Global bond yields have diverged.
Germany’s 10-year rate is down 1 bp to 0.25%, supported by the ECB’s lack of urgency to normalise monetary policy.
Italy’s 10-year rate is down 13 bps to 2.15%, as risks for an autumn (Northern hemisphere) election faded after a multi-party agreement on a new election law failed to hold up in Parliament. This now likely delays the election to next year. This has implications for EUR as well, as Italian elections represent a key risk event for the euro-area and is the key threat to our stronger EUR outlook.
UK’s 10 year rate rose by 2 bps as voters went to the polls, while higher rates are seen across the US Treasury curve, no doubt reflecting some relief that the Comey testimony didn’t reveal any new twists.
The US 10 rate has come off a high of 2.21% and now sits at 2.19%, up 2 bps for the day.
After the UK election result is out of the way, focus will turn to next week’s FOMC meeting. We see more upside than downside risk to bond yields following that announcement.
Yesterday, local rates moved off their lows for the year, with swap rates up 1-2 bps and government rates up 2-3 bps.
With NZ monetary policy on hold for an extended period it remains a fairly dull picture to report on each day and the curve remains at the mercy of global forces.