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BONDS: NZ-US 10Y Differential Back At Lowest Since Mid-2021

BONDS
BulletMarketsFixed Income Bullets

NZGBs closed showing a bull-steepener, with benchmark yields flat to 3bps lower. The NZGB 10-year has outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 5bps tighter on the day. 

  • At +9bps, the NZ-US 10-year differential is around its lowest since mid-2021.
  • A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past year indicates the 10-year yield differential is close to its estimated fair value of +7bps.
  • Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship​.  
  • The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.

 

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NZGBs closed showing a bull-steepener, with benchmark yields flat to 3bps lower. The NZGB 10-year has outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 5bps tighter on the day. 

  • At +9bps, the NZ-US 10-year differential is around its lowest since mid-2021.
  • A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past year indicates the 10-year yield differential is close to its estimated fair value of +7bps.
  • Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship​.  
  • The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.

 

Keep reading...Show less