Daily Commentary BY THE CURVE TEAM –

Trump’s Tax Triumph and Treasuries

21st of December, 2017

Trump’s tax plan was finally passed by the Senate paving the way for him to sign off on it as soon as possible. While touted as the biggest shake up in the US tax code in decades, the finally passage of approval drew little reaction from the markets.

Equity markets dipped slightly after the announcement but remain just off their all time highs after the close this morning. The USD is a little weaker, most noticeably against the EUR and looks set for a fall from a technical perspective.

The big news continues to be in the bond markets with further selling driving up yields in the longer end of the curve. After breaking higher yesterday, the yield on the US 10 year note continue to rise, sitting just below 2.50%. This is important for a number of reasons as we head into the new year.

Unlike Australia, where the most financial products revolve around the cash rate and short term rates, debt in the US is much more closely linked to longer term bond rates. Should longer bond rates in the US continue to rise, it could have widespread ramifications for the US economy.

The economic calendar continues to wind down as we approach the holidays. Key events and data to note over the next 24 hours is the BoJ monetary policy decision, NZ Q3 GDP, retail sales and inflation from Canada and the final read on Q3 GDP in the US.

David Flanagan

Director - Interest Rate Markets