The US 10-year rate opened higher as Asia opened and has since traded in a tight range with a slight downward bias. It is up 3bps at 2.39% from the weekend close and down 1bp from the NZ close. European rates are also higher, reversing Friday’s price action. The market doesn’t seem to have reacted much to the tax deal, as it was already largely priced in. Easier fiscal policy will come at a time when the US economy is fully employed, and when the bill is reconciled the Fed will take this into account in its policy deliberations, adding to the chance of further monetary policy tightening over the year ahead. Alongside a higher US fiscal deficit and borrowing programme, it adds to the probability of upside pressure to rates across the curve next year.
In the local rates market, downward pressure remained evident for money market rates, with the 90-day bank bill rate trading down to a fresh record low of 1.90%. We’ve previously noted the flush liquidity conditions as banks sit on a lot of cash, with easy funding conditions and softer credit demand. This saw the 2-year swap rate marked down near its September low of 2.13% in the morning, before closing 1bp higher at 2.15%. The 10-year swap rate closed 1bp higher as well at 3.09%. Spencer’s speech will be the focus today ahead of the RBA’s policy decision later this afternoon, which is expected to see the neutral policy bias maintained. Tonight’s key release will be the US ISM non-manufacturing index.