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Tightening Cycle Isn’t Over In The $-Bloc


$-Bloc markets are signaling that further tightening measures are on the horizon, a stark deviation from the message conveyed on May 8 when it was widely believed that the tightening cycle was nearing its conclusion.

  • This week has seen a significant firming across meetings as hawkish Fedspeak and the release of FOMC minutes for May, which revealed a division among officials regarding their support for further interest rate hikes, pressure pricing. A cumulative 25bp of tightening is now priced by July, with year-end easing scaled back to 37bp from 51bp on Monday and 80bp on May 11.
  • CA STIR has also moved to price in more than one cumulative 25bp hike by October. At the end of last week, only 11bp of further was priced.
  • Terminal rate expectations have pushed to a post-May RBA hike high of 4.01% this week ahead of retail sales data for April today.
  • In sharp contrast to the other $-Bloc markets, NZ STIR has shunted softer following the dovish hike from the RBNZ. RBNZ dated OIS pricing is 26-29bp softer across meetings with the terminal rate dropping from 5.93% pre-RBNZ to 5.66% currently.

Figure 1: $-Bloc STIR: Terminal Rate Expectations & Year-End Pricing

Source: MNI – Market News / Bloomberg

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