BONDS: NZGBS: Closed Near Cheaps But Held Bull-Flattener
Feb-14 03:50
NZGBs closed near session cheaps. Nevertheless, the market showed a bull-flattener, with benchmark yields 1-5bps lower. The NZ-US 10-year yield differential rose 2bps to -2bps, with the NZ-AU differential unchanged at +9bps.
- “NZ Treasury Secretary Iain Rennie says the country needs to address its high cost of capital, which is a key driver of its poor productivity growth. Renni identifies "relatively high tax rates on businesses" as part of a policy landscape that discourages investment and the inflow of foreign capital, and suggests focus on four areas to lift productivity growth.” (per BBG)
- Food prices in NZ rose 1.9% m/m in January, a leap from the 0.1% uptick in December 2024 to mark the highest increase since July 2022. "The proportion of the food basket that increased by over 5% in price was the highest in five years,": StatsNZ
- Swap rates closed flat to 3bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed slightly softer across meetings today.
- Notably, OIS pricing is 2–14bps firmer than pre-Q4 Labour Market data levels from February 4. Nevertheless, 48bps of easing is priced for February, with a cumulative 116bps by November 2025.
- On Monday, the local calendar will see the Performance Services Index and Net Migration data.
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STIR: BOJ Dated OIS Firms Back To Pre-Dec MPM Levels
Jan-15 03:28
BOJ-dated OIS pricing has shifted notably following BoJ Deputy Governor Himino's speech yesterday. The speech was interpreted as another indication that the policy board is leaning toward a 25bp rate hike at its upcoming meeting on January 23–24.
- Himino shared his views on two factors – the momentum of domestic wage growth and US President-elect Donald Trump’s policies. These align with points raised by Governor Kazuo Ueda in December, where he identified them as pivotal in determining the timing of the next rate hike.
- Current OIS pricing has largely returned to pre-December MPM (Monetary Policy Meeting) levels. On Monday, pricing was 1–6bps softer across meetings compared to pre-December MPM levels, with January 2025 leading the decline.
- Market expectations currently indicate: a 62% probability of a 25bp hike in January; a cumulative 83% chance by May; and a full 25bp increase not fully priced in until May 2025.
- On Monday, only a 28% probability of a 25bp hike in January was priced, with a full 25bp increase not fully priced until June 2025.
Figure 1: BOJ-Dated OIS – Today Vs. Pre-BOJ MPM (December)
Source: MNI – Market News / Bloomberg
AUSSIE BONDS: Subdued Session Ahead Of US CPI
Jan-15 02:07
ACGBs (YM -2.0 & XM -2.0) are slightly cheaper after trading in a narrow range in today's Sydney session.
- Cash US tsys are flat to 1bp richer in today’s Asia-Pac session after yesterday’s directionless session. Focus turns to today’s CPI inflation data for December where rental inflation is expected to accelerate to an average figure that firmly rounds to 0.3% M/M in December.
- Cash ACGBs are 1-2bps cheaper with the AU-US 10-year yield differential at -14bps.
- Swap rates are 2-3bps higher.
- The bills strip flat to -1 across contracts.
- RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut is fully priced for April (101%) now, with the probability of a February cut at 68% (based on an effective cash rate of 4.34%).
- Today, the local calendar is empty.
- Expectations of strong pricing at auctions were confirmed, with the latest ACGB Dec-34 supply achieving a weighted average yield that printed 0.70bp through prevailing mids (per Yieldbroker). The cover ratio also improved, rising to 2.8875x from 2.8375x.
- AOFM Bond issuance will issue A$700mn of the 2.75% 21 November 2027 bond on Friday.
