Interest rate futures Q3 2021
Overall Q3 rates futures volumes were 1% lower than Q2 and 10% lower when compared with the same period last year (Q3 2020), largely driven by reduced levels of Open Interest across the curve and a general risk off environment due to ongoing lockdowns across the country.
The 3’s10’s curve finished the quarter at just over 1.00% (1.04%) after dropping as low as 0.85% in August, the lowest level since January 2021. The recent steepening was largely driven by developments in the US around the timing of future interest rate rises (possibly as early as 2022) and expected tapering of bond purchases before the end of the year. The mid part of the Cash Rate Futures curve flattened over Q3 with the market pushing out the expected timing of local interest rate rises due to deteriorating economic conditions as a result of extended lockdowns.
At the September meeting, the RBA extended its bond buying program (QE) until at least February 2022 at a rate of $4 billion per month. The Bank remains upbeat on the future economic state with the delta outbreak seen as a temporary setback that is ‘expected to delay but not derail the recovery.’ The market continues to price in rate rises well before the RBA’s projected 2024 timeline with the first hike fully priced for December 2022 (as at the end of Q3).
The Reserve Bank of New Zealand increased the Official Cash Rate by 0.25% to 0.50% at the October meeting ‘to maintain low inflation and support maximum sustainable employment’. The market is pricing another 0.25% increase in November and further increases in 2022.