J.P.Morgan Enter Received NZ/AU 1Y/1Y Position

J.P.Morgan note that “in late January we exited a received position in the NZD/AUD 1Yx1Y swap spread, and nominated a move back to the +100-110bp range as attractive for re-entry. In this week’s unwind from the cyclone-induced rally in NZD rates, the spread is back above +100bp, and we re-enter the received position. Historically, the sustainable policy gap is less than +50bp given similar household interest sensitivity. The blow-out over 2021-22 occurred because precise cycle timing matters a lot in a sharp rate adjustment, and as the RBNZ’s policy lags were lengthened by mortgage maturity extensions. These effects should be substantially unwound in H123.”

• They recommended entry at a spread of 102.4bp.