NZGBS: Closed On A Weak Note, NZ-US 10Y Diff Too Wide

NZGBs closed on a weak note, with benchmark yields 4-5 bps higher. With the domestic calendar empty today, the move reflects the cheapening in US tsys over the past 24 hours.

• The NZ-US 10-year yield differential currently stands at +40 bps, up from its late July low of +14 bps, which was the narrowest level since late 2022. Before this, the differential had fluctuated between +20 and +80 bps since late 2022.
• The recent widening of the 10-year yield differential aligns with an increase in the NZ-US 1Y3M spread. However, a simple regression analysis over the current tightening cycle suggests that the 10-year yield differential is about 14 bps wider than fair value, which would be +26 bps instead of the current +40 bps.
• Swap rates closed 3-5 bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed 1-7 bps firmer across meetings. A cumulative 73 bps of easing is priced by year-end.
• Tomorrow, the local calendar will see Filled Jobs data ahead of ANZ Business Confidence on Thursday, and ANZ Consumer Confidence and Building Permits on Friday.
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% May-30 bond, NZ$200mn of the 4.50% May-35 bond and NZ$50mn of the 2.75% May-51 bond.