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BONDS: NZ-US 10Y Differential Near YTD Low But Still Above FV

BONDS
BulletMarketsFixed Income Bullets

NZGBs closed 5-6bps richer but slightly off the local session’s best levels ahead of tomorrow’s RBNZ policy decision. 

  • The NZ–US 10-year yield differential currently stands at approximately 15bps, near its narrowest level since mid-2021.
  • A simple regression analysis using the 3-month forward swap rate spread (1Y3M) over the past year suggests that the 10-year yield differential is about 14bps wider than its estimated fair value of +1bp.
  • Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship​.
  • The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.

 

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NZGBs closed 5-6bps richer but slightly off the local session’s best levels ahead of tomorrow’s RBNZ policy decision. 

  • The NZ–US 10-year yield differential currently stands at approximately 15bps, near its narrowest level since mid-2021.
  • A simple regression analysis using the 3-month forward swap rate spread (1Y3M) over the past year suggests that the 10-year yield differential is about 14bps wider than its estimated fair value of +1bp.
  • Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship​.
  • The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.

 

Keep reading...Show less