November 12, 2024 02:00 GMT
BONDS: NZ-US 10Y Differential Above Fair Value
BONDS
NZGBs are 1-3bps cheaper across benchmarks, aligning with US cash Tsys, which are also 1-3bps cheaper in the Asia-Pacific session today with a flattening bias. US tsys reopened today after being closed for the Veterans Day holiday yesterday.
- The NZ–US yield spread is at +27bps, about 17bps above last week's post-election low of ~+10bps — the narrowest level since mid-2021.
- A simple regression analysis with the 3-month swap rate 1-year forward (1Y3M) spread over the past year suggests that the 10-year yield differential is 8bps wider than its fair value of +19bps.
- The regression error has ranged within +/- 20bps over the past year, indicating some variability in the relationship.
- The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.
Figure 1: NZ-US 10-Year Yield Differential
Source: MNI – Market News / Bloomberg
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