JGBS: Little Changed, Range-Bound Session Ahead Of US Payrolls

In roll-impacted dealings, ACGBs (YM -2.2 & XM -5.7) are cheaper on a data-light Sydney session. Andrew Hauser, RBA Deputy Governor, will give a speech at the ABE Annual Dinner aftermarket.

• Cash US tsys are ~1bp cheaper in today’s Asia-Pac session ahead of US CPI data later today. 
• Cash ACGBs are 2-6bps cheaper on the day but remain 2-8bps richer, with a steeper curve, than yesterday’s pre-RBA levels.
• The AU-US 10-year yield differential is at -4bps, around its lowest since July.
• Swap rates are flat to 4bps higher, with the 3s10s curve steeper.
• The bills strip is little changed, with pricing flat to -1.
• RBA-dated OIS pricing is largely unchanged today but remains 3–12bps softer than pre-RBA levels observed yesterday. A 25bp rate cut is now more than fully priced for April, with market expectations at 115%. The market assigns a 60% chance to a 25bp cut at February’s meeting.
• Tomorrow, the local calendar will see the November Employment Report. Bloomberg consensus is forecasting a 25k rise in new jobs and a 0.1pp rise in the unemployment rate to 4.1%. The RBA continued to describe the labour market as tight in its December statement noting that some indicators had “stabilised”, including hours worked, underemployment and the youth unemployment rate. 

NZGBs closed showing a bull-steepener, with benchmark yields flat to 3bps lower. The NZGB 10-year has outperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 5bps tighter on the day. 

• At +9bps, the NZ-US 10-year differential is around its lowest since mid-2021.
• A simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past year indicates the 10-year yield differential is close to its estimated fair value of +7bps.
• Notably, the regression error has fluctuated within a range of ±20bps over the past year, highlighting some variability in the relationship​.  
• The 1Y3M differential continues to be a key driver of market expectations for long-term yield convergence.

Figure 1: NZ-US 10-Year Yield Differential

 Source: MNI – Market News / Bloomberg

Ahead of November US CPI out later today, there have only been restrained moves in G10 currencies. The BBDXY USD index is off its intraday low but still down 0.1%. The yen has made the largest move with USDJPY down 0.3% to 151.56 but off the intraday low of 151.42. Japanese corporate goods price inflation picked up but imported pressures fell.

• AUDUSD fell to 0.6369 in early trading continuing Tuesday’s sell off but it is now up 0.1% to 0.6384, after reaching 0.6389. RBA Deputy Governor Hauser speaks at 1800 AEDT at the ABE annual dinner. AUDJPY is 0.2% lower at 96.75 after falling to 96.62.
• NZDUSD is 0.1% higher at 0.5803 after falling to 0.5797 earlier. AUDNZD has been hovering around 1.10 for much of the session to be higher than before Tuesday’s RBA announcement.
• European currencies are little changed with ECB and SNB meetings on Thursday. EURUSD is around 1.0529, EURCHF 0.9301 and EURGBP 0.8243.
• APAC equities are mixed with the Hang Seng down 0.2%, CSI 300 flat and S&P e-mini up 0.1% and KOSPI +0.6%. Oil prices are higher with WTI +0.6% to $69.00/bbl. Copper is up 0.9% and iron ore is $105-106/t.
• November US CPI data is out later, which is expected to show headline ticking up to 2.7% y/y but core steady at 3.3% y/y. The Fed is currently forecast to cut rates 25bp on December 18. US November real earnings and federal budget balance are also out and the Bank of Canada decision is announced.