AUSSIE BONDS: Grinds Higher On data Light Day, AU-US 10Y Diff Back At 30bps

NZGBs closed slightly off session bests, with benchmark yields 2-3bps lower. 

• With cash US tsys 2-3bps cheaper in today’s Asia-Pac session, the NZ-US 10-year yield differential dipped into negative territory (-1bp) for the first time since November.
• Oil prices rallied early in APAC trading after news of US attacks on military sites in southern Iran in retaliation for its downing of a US helicopter. They were then supported again by reports of further explosions in southern Iran, which the US confirmed were close to the Strait of Hormuz. Also Iran targeted US bases in Kuwait, Jordan and Bahrain and warned countries in the region not to allow the US to use their territory. Once the US said that its action was completed, oil prices eased and are currently slightly higher on the day and above the intraday low.
• Swap rates closed 1-2bps higher, with implied swap spreads wider.
• RBNZ-dated OIS pricing is little changed across meetings. 23bps of tightening is priced for July, while February 2027 assigns 87bps.
• The local calendar will be empty until Friday's release of BusinessNZ Manufacturing PMI and Net Migration data.
• On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond and NZ$225mn of the 3.50% Apr-33 bond.

• Gold fell today as oil prices rose and US Yields jumped following news that the United States launched targeted military strikes against Iran. The sudden breakdown of a fragile regional ceasefire shook confidence and risk sentiment suffered.  
• Gold markets are wary of hawkish US sentiment and ahead of Wednesday's CPI, a further rise in yields was enough to send gold lower by -2% to US$4,173 and new lows for the year.  
• Gold is looking like it is in a bear market having fallen over -23% from the January high.  
• From a technical perspective, gold prices are somewhere not seen for some time - below the 200-day EMA - for the first time since October 2023. This is widely viewed as confirmation that the multi-year bullish momentum has stalled, flipping the intermediate trend to bearish.
• Expectations for the May US CPI are that following April's jump to +3.8%, May could see a further increase to +4.2%, adding to the hawkish outlook.
• One potential factor that may cap immediate, further declines in gold is that it is now at oversold on the 14-day relative strength index.

Oil prices rallied early in APAC trading after news of US attacks on military sites in southern Iran in retaliation for its downing of a US helicopter. They were then supported again by reports of further explosions in southern Iran, which the US confirmed were close to the Strait of Hormuz. Also Iran targeted US bases in Kuwait, Jordan and Bahrain and warned countries in the region not to allow the US to use their territory. Once the US said that its action was completed, oil prices eased and are currently slightly higher on the day and above the intraday low.

• Given the latest hostilities put a US-Iran deal in doubt, crude’s response has been limited signalling some optimism remains in the market.
• WTI is 0.6% higher at $88.75/bbl after reaching $90.00 but then falling to $88.28. Brent is up 0.7% to $92.13/bbl after rising to $93.26 and then decreasing to $91.66 – quite a narrow range given today’s Middle East developments.
• According to Bloomberg, US industry data from API showed another large crude inventory drawdown of 9.1mn barrels last week. There was also a gasoline drawdown of 1.2mn barrels but distillate build of 1.3mn. Official EIA data is released on Wednesday.
• Later US May CPI data are released and expected to show an increase in headline inflation to 4.2% y/y and core to 2.9%. There are also US May average earnings and budget balance. The BoC is expected to announce unchanged rates and the ECB’s Buch participates in a panel.