NZGBS: Closed At Cheaps, AU-NZ 10Y Differential Too Negative

NZGBs closed at local session cheaps, with benchmarks flat to 1bp cheaper. Without domestic catalysts, the local market has largely tracked US tsys in the Asia-Pac session.

• A simple regression of the AU/NZ 10-year yield differential versus the AU-NZ 1Y3M swap differential suggests fair value is around -65bp versus the 10-year differential’s current level of around -85bp. The current negative regression error could be in part due to speculation that the September 12 release of the NZ Pre-Election Economic and Fiscal Update (PREFU) may highlight a material fiscal deterioration. (See link)
• The swap curve has twist flattened, with rates 2bp higher to 1bp lower. The implied 2s10s swap spread box is flatter.
• RBNZ dated OIS pricing is 1-2bp softer for meetings beyond Feb’24. Terminal OCR expectations sit at 5.65%.
• The local calendar is empty until Building Permits on Wednesday. On Thursday, ANZ Business Confidence is on tap, ahead of ANZ Consumer Confidence on Friday.