Record low for NZ 2-year swap; US rates continue to fall; Dudley's speech suggests Fed not about to hike; Former Fed Chair Greenspan voices concerns US heading for period of stagflation

By Jason Wong

The Fed’s lack of urgency to tighten policy, as espoused in the FOMC minutes released yesterday morning have helped support a bid tone for bond markets. 

US rates are down slightly across the curve, including a 1.5bps fall for the 10-year rate to 1.53%.

New York Fed President Dudley was in the headlines again, providing some Q&A after a speech. As the indicators suggest, Q3 GDP “will be quite stronger” than 1H, but he added that he puts less weight on GDP than the labour market. 

Nevertheless a strong Q3 would “probably push you in the direction of being more inclined to tighten policy. But not necessarily”. That was hardly a ringing endorsement of an imminent rate hike and US yields nudged a little lower after Dudley’s talk.

Former Fed Chair Greenspan (remember him?) was also on the wires. He forecast that interest rates will begin rising soon, perhaps rapidly. He also repeated his previously-voiced concern that the U.S. economy was headed toward a period of stagflation – a period of low growth and high inflation. Enough said.

In local trading yesterday, there was slight bias to lower yields, based on offshore moves. The 2-year swap rate closed down 2bps to 1.94, a record low. The 10-year rate fell by 2bps to 2.39%. The government’s $150m tender of 2025 bonds was well received with bids totalling $720m. That bond closed the day 2.5bps lower at 2.015%

Today the economic calendar is very light, with only NZ net migration data of some interest and nothing worth mentioning on the international calendar.

Daily swap rates

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for(i=0;i

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