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BONDS: NZGBS: Closed Richer, AU-NZ10Y Diff Too High

BONDS
BulletMarketsFixed Income Bullets

NZGBs closed slightly above the session’s best levels, flat to 4bps richer. The NZ-US and NZ-AU 10-year yield differentials closed 1bp tighter.

  • The AU-NZ 10-year yield differential stands at -1bp compared to the early November high of +10bps, the highest level since August 2022.
  • The recent decline in the 10-year yield differential has mirrored a similar move in the AU-NZ 1-year forward 3-month swap rate (1Y3M) spread.
  • However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 12 months shows that the 10-year differential is around 9bps above fair value based on the regression model (-1bp compared to a fair value of -10bps).
  • Outside of the previously outlined Building Permits, there hasn't been much by way of domestic drivers to flag.
  • Swap rates closed 2-4bps lower, with the 2s10s curve flatter.
  • RBNZ dated OIS pricing is flat to 2bps softer. 42bps of easing is priced for February.
  • Tomorrow, the local calendar will see Q3 Terms of Trade data alongside Finance Minister Nicola Willis’s appearance at a select committee to discuss Financial Statements.
  • This week, the NZ Treasury plans to sell NZ$200mn of the 3.00% Apr-29 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 2.75% Apr-37 bond.
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NZGBs closed slightly above the session’s best levels, flat to 4bps richer. The NZ-US and NZ-AU 10-year yield differentials closed 1bp tighter.

  • The AU-NZ 10-year yield differential stands at -1bp compared to the early November high of +10bps, the highest level since August 2022.
  • The recent decline in the 10-year yield differential has mirrored a similar move in the AU-NZ 1-year forward 3-month swap rate (1Y3M) spread.
  • However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 12 months shows that the 10-year differential is around 9bps above fair value based on the regression model (-1bp compared to a fair value of -10bps).
  • Outside of the previously outlined Building Permits, there hasn't been much by way of domestic drivers to flag.
  • Swap rates closed 2-4bps lower, with the 2s10s curve flatter.
  • RBNZ dated OIS pricing is flat to 2bps softer. 42bps of easing is priced for February.
  • Tomorrow, the local calendar will see Q3 Terms of Trade data alongside Finance Minister Nicola Willis’s appearance at a select committee to discuss Financial Statements.
  • This week, the NZ Treasury plans to sell NZ$200mn of the 3.00% Apr-29 bond, NZ$250mn of the 4.25% May-34 bond and NZ$50mn of the 2.75% Apr-37 bond.