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BONDS: AU-NZ 10Y Yield Differential Holding Near Year-Highs

BONDS
BulletMarketsFixed Income Bullets

The AU-NZ 10-year yield differential is unchanged today, now standing at -18.bps compared to the recent high of -5bps in late July, which marked the highest level since August 2022.

  • The recent move lower in the 10-year yield differential coincided with a move lower in the AU-NZ 3-month swap rate 1-year forward (1Y3M) spread.
  • The NZ 1y3m rate has risen around 40bps since the end of September in line with the recent scaling back of easing expectations in the US.
  • A simple regression of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 12 months suggests that the differential is close to its regression fair value (i.e., -18bps versus -20bps fair value).
  • The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.

 

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The AU-NZ 10-year yield differential is unchanged today, now standing at -18.bps compared to the recent high of -5bps in late July, which marked the highest level since August 2022.

  • The recent move lower in the 10-year yield differential coincided with a move lower in the AU-NZ 3-month swap rate 1-year forward (1Y3M) spread.
  • The NZ 1y3m rate has risen around 40bps since the end of September in line with the recent scaling back of easing expectations in the US.
  • A simple regression of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 12 months suggests that the differential is close to its regression fair value (i.e., -18bps versus -20bps fair value).
  • The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.

 

Keep reading...Show less