Angst around the possibility of the US government shutdown may have been a factor in pushing the US 10-year rate up to as high as 2.62%, just 1 bp shy of the peak in March last year and a key technical level to watch.
It has since retreated down to 2.60%. But one doesn’t need to search hard to find reasons why rates are back up to 2.6%, with the upward trend this year easily explainable by the stronger US growth and inflation picture and higher conviction on further Fed tightening this year.
In the local rates market yesterday, the DMO’s tender of 2025 bonds met strong demand, with a bid/cover ratio of 3 and clearing through pre-tender mid-rates.
But the bigger force on the market was higher US rates, which saw longer end government bond rates up 3-4 bps and the swap curve up 2 bps. The 2-year rate closed at 2.25%, the highest level since September.
In the day ahead, NZ PMI data will be released where we’ll be seeing if activity has held up or not post-election despite the plunge in business confidence.
Globally, the key focus will remain US shutdown risks. The economic calendar looks light, with the speech by the Fed’s newcomer Bostic on the US economy of some interest.