Market wrap: longer maturity bond yields to move higher? - Westpac

Analysts at Westpac's market wrap...

Key Quotes:

"Global market sentiment: US interest rates rose, partly helped by Fed Chair Yellen’s comments that balance sheet shrinkage would probably steepen the yield curve. The AUD and NZD are firmer.

Interest rates: US 10yr treasury yields rose from 2.30% to 2.36%, and 2yr yields rose from 1.34% to 1.37%.Fed fund futures yields continued to price the chance of a December rate hike at around 45%.

Currencies: The US dollar index is unchanged. EUR again performed poorly, falling from 1.1450 to 1.1371. USD/JPY bounced from 112.90 to 113.47. AUD extended its recent rally to 0.7740 – a four-month high. NZD rose from 0.7290 to 0.7343 (setting aside the later 5-minute spike). AUD/NZD continued to consolidate between 1.0520 and 1.0580.

Economic Wrap

US PPI in Jun slowed to a 2.0% pace (from 2.4%) as expected, the core measure slipping from 2.1% to 2.0%.

Fed Chair Yellen’s testimony to Senate was a repeat of the previous day’s missive to Congress, but she did add in Q&A that balance sheet normalisation, while intended to be very gradual, could push longer maturity bond yields higher but not affect short maturities. Brainard and Kaplan both reiterated their desire to see inflation pressures resume before endorsing further tightening."