JGBS: Futures Lagging Tsys, 20yr Debt Auction Digested Smoothly, BoJ Speech Thur

The NZD/USD had a range of 0.5947 - 0.5966 in the Asia-Pac session, going into the London open trading around 0.5965, +0.20%. US Equities traded sideways as the market turned its focus towards the FOMC this week and what the potential upcoming cutting cycle could look like. The NZD topped out just below 0.6000 as momentum higher stalled. The USD though is still looking vulnerable, which continues to support the NZD. A close back above 0.6000 would negate any semblance of the downward pressure it was exhibiting, but for those that have a bearish view this remains a decent entry point to express that. We might have to wait for the FOMC to get some clarity as CFTC Data shows positions are light with conviction obviously low.

• (Bloomberg) -- New Zealand’s services industry contracted for an 18th straight month in August, suggesting that an economic rebound in the third quarter could be more sluggish than expected. Reserve Bank Governor Christian Hawkesby said last week that early indicators of third-quarter activity gave him confidence of an economic rebound, and he reiterated that policymakers’ central projection is that the Official Cash Rate will be cut to 2.5% by the end of the year
• "NZ TREASURY SEES UNCERTAINTY OVER PACE OF 2H ECONOMIC RECOVERY, NZ TREASURY COMMENTS IN FORTNIGHTLY ECONOMIC UPDATE" - BBG
• China Weak Property Data Continues: Property Investment YTD YoY and Residential Property Sales YoY declined more than expected in August.  Property Investment YTD YoY fell -12.9%, its largest monthly decline. It has not recorded a positive monthly result since March 2022. Residential Property Sales YoY declined -7.0% in August, the worst result for 2025. It has not recorded a positive monthly result since July 2023.
• Options : Closest significant option expiries for NY cut, based on DTCC data: none. Upcoming Close Strikes : 0.5825(NZD1.01b Sept 17), 0.5900(NZD860m Sept 17), 0.6250(NZD427m Sept 17) - BBG
• CFTC Data of last week shows Asset Managers added slightly to their new short position in the NZD -5127(Last -4743), the Leveraged community have completely exited their short and have turned a fraction long +285(Last -225)..
• AUD/NZD range for the session has been 1.1150 - 1.1176, currently trading 1.1175. The Cross is consolidating above 1.1100, dips back towards 1.1000/1.1050 should be supported now. A break above the multiple highs towards the 1.1200 area is needed to regain the momentum higher.

Fig 1: NZD CFTC Data

Source: MNI - Market News/Bloomberg Finance L.P

NZGBs closed 2-4bps cheaper, with the 2/10 curve steeper.

• Swap rates closed 1-3bp higher.
• (Bloomberg) “Economic activity is expected to pick up over the second half of 2025 but there is uncertainty surrounding the pace of recovery, the Treasury Dept. says in its Fortnightly Economic Update released Monday in Wellington.”
• The focus of the week will be on Thursday’s Q2 GDP data release. Bloomberg consensus is in line with the RBNZ’s August forecast of -0.3% q/q bringing the annual rate to flat after declining 0.7% y/y in Q2. 25bp rate cuts are expected at both the October 8 and 26 November meetings.
• August monthly price series including food, electricity, rent, petrol and travel print on Tuesday. Food price inflation has been picking up. There is a risk that Q3 CPI inflation exceeds the 3% top of the RBNZ’s target band. The bank is forecasting 3% for the quarter.
• On Wednesday, Q3 current account data is out and the deficit is expected to narrow to 4.8% of GDP but with it widening to $2.7bn from $2.32bn in Q2.
• There is also Westpac Q3 consumer confidence on Wednesday.
• RBNZ dated OIS pricing closed little changed across meetings. 22bps of easing is priced for October, with a cumulative 40bps by November 2025.

• China's bond futures higher Monday, with the 10-Yr leading.  
• Up +0.10 the 10-Yr is at 107.78, below the 20-day EMA of 107.90.
• The 2-Yr future is lower by -0.01 at 102.35, to remain below the 20-day EMA of 102.38.
• The 10-Yr CGB is lower by -1bp at 1.79%