SOUTH KOREA: Korean update Swaps Pricing Vs. Pre-BOK February Meeting Levels

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

In terms of the CFTC positioning update from Friday, leveraged contracts saw a sharp shift against the USD. This data is for the week ending Feb 18. The table below outlines positioning shifts by currency and investor type and what the outstanding position is now for each currency. 

• Except for NZD, leveraged players sold the USD against all the currencies covered by CFTC. Notably shifts were for AUD, EUR and JPY. Still, in an outright sense we have net shorts across all currencies except for GBP for this investor class.
• This suggests more short covering/exiting long USD positions could take place, although such flows may have already transpired to some degree, as current USD index levels sub those seen on Feb 18.
• For asset managers, the bias was also skewed against the USD, although this was mainly reflected in terms of positive flows into EUR and GBP.
• EUR/USD was the stand out last week from a flow standpoint. 

Fig 1: CFTC Positioning Update By Currency & Investor Type

Source: CFTC/MNI - Market News/Bloomberg