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NZGBS: Closed Cheaper & On A Weak Note, Light Local Calendar Again Tomorrow

BONDS

NZGBs closed on a weak note, with the benchmarks 2-4bps cheaper. The domestic calendar was empty today and will be relatively light for the remainder of the week, with House Prices, Commodity Prices and Building Permits as the highlights.

  • Given that, local participants appear to have turned to US tsy futures for directional guidance. TYH4 is dealing at 111-19, -0-04 compared to the NY closing level. Notably, there was no cash US tsy trading during today's Asia-Pacific session with Japan out for a public holiday.
  • On a relative basis, the AU-NZ 10-year differential is unchanged at -44bps.
  • A simple regression of the AU-NZ 10-year yield differential versus the AU-NZ 3-month swap rate 1-year forward (1y3m) differential suggests fair value is around -38bps. (See link)
  • Swap rates are 4-5bps higher, with the 2s10s curve flatter.
  • RBNZ dated OIS pricing is flat to 8bps firmer across meetings, with November leading. As a result, the cumulative easing by year-end has subsided to 89bps.
  • Tomorrow, the local calendar is empty, but Australia sees Retail Sales and Building Approvals. Tokyo CPI is also due in Japan.
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