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BONDS: NZ-US 10Y Yield Differential Too High

BONDS
BulletMarketsFixed Income Bullets

NZGBs closed mid-range, 2bps cheaper across benchmarks. 

  • Notably, the NZ-US 10-year yield differential narrowed 1bp to +19bps. This placed the differential slightly above July's low of +13bps, the narrowest level since mid-2021.
  • Interestingly, a simple regression analysis over the past year suggests that the 10-year yield differential is about 10bps wider than fair value (+9bps).
  • 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 mid-range, 2bps cheaper across benchmarks. 

  • Notably, the NZ-US 10-year yield differential narrowed 1bp to +19bps. This placed the differential slightly above July's low of +13bps, the narrowest level since mid-2021.
  • Interestingly, a simple regression analysis over the past year suggests that the 10-year yield differential is about 10bps wider than fair value (+9bps).
  • 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