US TSYS: Yesterday’s Modest Gains Reversed In Today’s Asia-Pac Session

• China’s main bond futures headed in different directions at the start of the week.
• China’s 10YR bond future is down -.18 at 108.075, marking the third trading day in a row of declines.
• The move lower sees the 10YR future inching towards the 100-day EMA of 108.02, with the 50-day EMA being dragged lower at 108.61.
• The 2YR bond future is up +0.05 today at 102.62, below all major technical levels.
• Cash market is weaker today also with government bonds up to 1bp higher in yield across most maturities.
• Equity markets too are down today with key bourses down by -0.10% to -0.50%
• This week sees the decision on the 1-year Medium Term Lending Facilities with market expectations for now change at 2.00%, but with an increase in volume from CNY200bn to 300bn

NZGBs closed showing a bull-flattener, with benchmark yields 2-5bps lower. Nevertheless, NZGBs finished mid-range, with the 10-year underperforming its Australian counterpart. 

• The AU-NZ 10-year differential finished at -9bps compared to the recent high of +10bps in early November, which marked the highest level since August 2022. However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 18 months shows that the 10-year differential is around 14bps above fair value based on the regression model.
• NZ Q4 2024 retail sales (ex inflation) were stronger than forecast, rising 0.9% q/q, against a 0.5% market expectation. This was the firmest q/q print since the end of 2021. This shows the impact of RBNZ easing beginning to benefit parts of consumer spending.
• Swap rates closed 3-6bps lower, with the 2s10s curve flatter.
• RBNZ dated OIS pricing closed little changed out to August but 3-5bps firmer beyond. 27 bps of easing is priced for April, with a cumulative 58 bps by November 2025.
• Tomorrow, the local calendar is empty.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$225mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.

The AU-NZ 10-year yield differential is 5bps lower today, standing at -12bps compared to the recent high of +10bps in early November, which marked the highest level since August 2022.

• The recent decline in the 10-year yield differential between Australia and New Zealand has mirrored a similar move in the AU-NZ 1-year forward 3-month swap rate (1Y3M) spread.
• However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 18 months shows that the 10-year differential is around 12bps above fair value based on the regression model (-11bps compared to a fair value of -23bps).
• The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.

Figure 1: AU-NZ: 10-Year Yield Differential Vs. FV

Source: MNI – Market News / Bloomberg