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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
AUSSIE BONDS
There are many variables at play in a cross-market 10-year yield differential but the key driver tends to be short-end spreads. Given that, simple regressions of long-end versus short-end differentials can often highlight relative value opportunities on a curve.
- A simple regression of the AU/US 10-year yield differential versus the AU-US 12-month forward OIS differential over the current tightening cycle reveals that the 10-year differential is currently around 20bp too negative (i.e. -16bp Vs. fair value +4bp) after being around fair value on 8 March.
Figure 1: AU/US 10-Year Yield Differential (%)
Source: MNI – Market News / Bloomberg
- The catalyst for this development has been a massive realignment in 12-month forward OIS in the U.S. versus Australia on the back of recent global banking concerns. While the 10-year yield differential has widened around 16bp over the past week or so, the AU/US short-end differential has widened around 50bp after a sharp 110bp decline in 12-month forward OIS in the U.S.
Figure 2: 12M Fwd. OIS: AU & U.S. (%)
Source: MNI – Market News / Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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