JGBS: Holding Cheaper At Lunch Break, US PPI Later Today

• The NZD/USD is trading above Monday's highs, last +0.38% at 0.5604 as NZGBS yields surge with the 2yr rising 11.1bps to 3.751%, following the Q4 NZIER Business Opinion Survey.
• The currency still remains in a bearish trend, with 0.5640 (20-day EMA) seen as key resistance, the pair hasn't managed to trade above the 20-day EMA level since early October.
• AUD/NZD has seen a 0.26% drop last 1.1035, although we still remain trading within the past 3 months range of 1.1000-1.1100.
• RBNZ dated OIS pricing is 3-18bps firmer across meetings, with late 2025 leading. 45bps of easing is priced for February, with a cumulative 108bps by November 2025. The expected official rate for November has firmed 30bps since Friday’s close.

NZGBs are significantly cheaper on both an outright and a relative basis. Benchmark yields have risen by 10–11bps, with the NZ-US and NZ-AU 10-year yield differentials widening by 9bps and 12bps, respectively. 

• In contrast, cash US Treasuries and ACGBs are ~1bp richer during today’s Asia-Pacific session. The local market's underperformance appears to be driven by the positive signals from the Q4 NZIER Business Opinion Survey and its influence on OIS pricing, which is tempering expectations for RBNZ easing.
• To sum up, the survey showed that a net 16% of businesses expect the economy to improve, vs 1% expecting it to get worse in Q3. This was the first positive outlook since Q2 2021. After seasonal adjustment, a net 9% of businesses expect the economy to improve, vs a revised 4% expecting deterioration in Q3.
• Swap rates are 8-13bps higher, with the 2s10s curve flatter.
• RBNZ dated OIS pricing is 3-18bps firmer across meetings, with late 2025 leading. 45bps of easing is priced for February, with a cumulative 108bps by November 2025. The expected official rate for November has firmed 30bps since Friday’s close.
• Tomorrow, the local calendar is empty.  
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 3.00% Apr-29 bond, NZ$175mn of the 3.50% Apr-33 bond and NZ$75mn of the 1.75% May-41 bond.

The Japanese Ministry of Finance (MoF) will today sell Y2.3tn of 5-Year JGBs. The MoF last sold 5-year debt on 10 December 2024, with the auction drawing cover of 4.4177x at an average yield of 0.734%, an average price of 99.84, a high yield of 0.736%, a low price of 99.83, with 5.3409% of bids allotted at the high yield.

• Last month’s 5-year bond auction demonstrated solid demand. The auction price exceeded dealer expectations, the cover ratio improved to 4.4177x from 3.8070x, and the auction tail shortened compared to the previous month.
• Today’s auction also comes after this month’s 10-year bond auction reflected better demand. The low price beat expectations, the cover ratio jumped and the tail shortened.
• The outright yield for today’s 5-Year offering is approximately 15bps higher than last month, marking a cyclical peak.
• Moreover, the 2/5 yield curve is now at its steepest since July 2024.
• Given the recent strength in demand for 5-Year bonds and improved performance in longer maturities, today’s auction results will be closely watched to see if the trend continues.
• Results are due at 0335 GMT / 1235 JST.