Ultra long bonds an option for the Americans as faster debt increases loom. Markets push out guess as to when next OCR rise due

By Jason Wong

Global bond markets have been largely uneventful although the release of the US Treasury department quarterly refunding report saw the US 10-year rate whip between 2.24-2.28% after its release.  It currently sits at 2.26%, near the level at the NZ close.

The Treasury said it would maintain the issuance of longer-term debt for the sixth straight quarter at $62 billion and predicted future borrowing needs will increase.

It would look to make a decision possibly over the next quarter on how to offset the Fed’s planned balance sheet unwind.  The Treasury department is still studying the possible introduction of ultra-long bonds, including seeking market feedback.

The softer NZ employment data supported lower rates across NZ’s curve, as the market gently continues to push put the timing of the first rate hike. 

A hike by August 2018 is no longer fully priced and one now has to stretch out to September 2018 to see that. 

The 2-year swap rate fell by 2 bps to 2.21% while the 10-year rate fell by 3 bps to 3.29%.

Unless the BoE throws a curve ball tonight, the rates market should remain quiet through to Friday night’s US non-farm payrolls release.

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