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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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Messaging from the RBA and the RBNZ since their respective policy meeting has been at different ends of the tightening spectrum, with RBA Governor Lowe signalling a willingness to consider a policy pause and RBNZ Governor Orr retaining his hawkish anti-inflation rhetoric.
- It should therefore surprise few that AU-NZ short-end yield differentials have narrowed substantially over the past week or so. Take for example the 12-month forward OIS differential. That spread has pushed to around -150bp, its lowest level since early 2022. For reference, the differential was around -110bp at the start of the month.
- The more noteworthy development today however has been the AU-NZ 10-year differential which narrowed 11bp to around -100bp, its lowest level since the late 1990s. The larger-than-expected deterioration in NZ’s current account deficit (-8.9% of GDP Vs. -8.5% expected) and the resultant comments from S&P about bond ratings were the catalysts. With Australia’s current account at multi-decade surplus highs as a share of GDP the difference couldn’t be starker.
- While there are normally many factors at play a simple regression of the NZ/AU 10-year yield differential versus the AU-NZ 12-month forward OIS differential (over the current tightening cycle) gives a guide to the impact of needing to fund a current account deficit. At current levels, the AU/NZ 10-year differential is around 20-25bp too low.
Figure 1: AU/NZ 10-Year Yield Differential (% Y-Axis) Vs. Au/NZ 12M Fwd OIS Differential (% X-Axis)
Source: MNI-Market News / Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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