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AU-NZ 10Y Yield Differential Near Highest Since August 2022

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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.


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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.


Keep reading...Show less