Daily Commentary BY THE CURVE TEAM –

Treasury Yields Surge Again

26th of February, 2021

Updates to yield curves continue to abound, with moves overnight and evolving policy.

US ten-year treasuries reached a high of 1.61% overnight, which is higher than a year ago. It ended at 1.49%.

As written about yesterday, this volatility in asset prices will likely continue for the near term, even without central bank policy changes. If central banks change their tact on loose policy this would add further fuel to volatility.

Yesterday the Reserve Bank of New Zealand announced they will consider house prices in their policy decisions. House prices soared in 2020 in New Zealand, which raised concerns of affordability.

New Zealand has been very dovish in their policy recently but factoring in house prices may force them to tighten policy sooner than expected. If similar concerns are raised for other central banks, then yield curves could steepen even further and the RBA will have less need to follow the loose policy of other central banks.

Yesterday, data for capital expenditure in Q4 showed a rise of 3%. A rise of 5.7% in equipment and machinery was the primary driver.

Planned expenditure is still down on previous levels. The first estimate for 2021/22 is 3.4% lower than the estimate for 2020/21.

The latest estimate for 2020/21 plans is tracking 7.1% lower than last year, which is to be expected given the carnage to business plans from covid. Today, private credit data for January is released.

Josh Stewart

Associate - Money Markets