July 17, 2024 05:28 GMT
AU-NZ 10Y Yield Differential Near Highest Since August 2022
AUSSIE BONDS
The NZGB 10-year closed 2bps cheaper on the day and 3bps cheaper than pre-Q2 CPI levels.
- While the headline CPI came in moderately lower than expected, the important domestically driven non-tradeables came in slightly higher than the RBNZ expected.
- Despite today's cheapening, the AU-NZ 10-year yield differential closed near its highest level since August 2022, at -15bps.
- A simple regression of the AU-NZ 10-year yield differential versus the AU-NZ 3-month swap rate 1-year forward (1y3m) differential over the current tightening cycle suggests the differential is still 6bps too low versus fair value (i.e., -15bps versus -9bps).
- The 1y3m differential is a proxy for the expected relative policy path over the next 12 months.
Figure 1: AU-NZ Regression: 10-Year Yield Differential Vs. 1Y3M Swap Differential
Source: MNI – Market News / Bloomberg
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