Westpac: Market Rates To Continue To Rise Into First Rate Hike

After looking at 2-Year swap rates and 10-Year ACGB yields around RBA rate hiking cycles, Westpac note that “regardless of the type of RBA cycle that evolves, front end rates will continue to rise as we head into the first hike. That is also reflected at the long end, although the ‘09 hike had been well anticipated, which could be one comparison with the current cycle. The second is that expectations for the policy path beyond the first hike will establish the directional tone. On average yields will still rise, especially if there are fears of inflationary expectations becoming untethered (i.e. ‘94), however our view is that 10-Year bond yields will be within 50bps of their highs by the time of the first hike, with the market shifting from selling rallies to buying dips early on in the cycle.”