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NZGBS: NZ/AU Cash Yield Differential Hits Widest Level Since 2015

BONDS

NZGBs bull flatten, closing on best levels of the day, richening 4-8bp. Slightly firmer prices for U.S. Tsys in Asia-Pac trade assisted the bid but NZGBs outperformed with the NZ/US cash 10-year yield differential closing -5bp. NZGBs also outperformed ACGBs by 3bp, but only after the NZ/AU cash 10-year yield differential pushed to a new cycle high of +90bp intraday, the highest level since 2015, before closing at +85bp.


Fig 1: NZ/AU Cash 10-year Yield Differential (%)

Source: MNI - Market News / Bloomberg

  • Swaps richened 4-9bp, implying flat to slightly tighter swap spreads, with the 2s10s curve -5bp. ·
  • RBNZ-dated OIS are 1-2bp firmer across meetings. April meeting pricing shows ~45bp of tightening, with terminal OCR pricing nudging further above the RBNZ’s projected OCR peak of 5.50% to ~5.64%. ·
  • On the data front, Cyclone Gabrielle dampened Card Spending in February with a 1.7% M/M decline recorded after an upwardly revised +3.4% M/M in January. While annual rates remain at historically high levels it is important to note that the series is nominal.
  • With the local calendar light until Q4 Current Account (Wed) and Q4 GDP (Thu) next week, the market will likely find itself guided by U.S. Tsys through the releases of February Non-Farm Payrolls (Fri) and CPI (Tue).

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