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AU/NZ 10-Year Yield Differential Off Lows


AU/NZ cash 10-year yield differential has pushed away from its multi-decade low of -100bp, which was reached after NZ's current account deficit deteriorated more than expected, to be currently -87bp, having been as high as -75bp earlier this week.

  • While consistent with the relative price movement in AU and NZ STIR, the 10-year yield differential has started to unwind the mispricing evident at the multi-decade low.
  • At its wides, a simple regression of the NZ/AU 10-year yield differential on the AU/NZ 1y1m OIS differential (over the current tightening cycle) suggested the 10-year yield differential was 20bp too negative, most likely reflecting the divergent current account situations in AU (record surpluses) and NZ (record deficits).
  • The regression error is currently around -14bp.

Figure 1: AU/NZ 10-Year Yield Differential (% Y-Axis) Vs. AU/NZ 1Y1M OIS Differential (% X-Axis)

Source: MNI – Market News / Bloomberg

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