BUND TECHS: (M5) Bull Cycle Extends

The terms of trade rose 1.8% q/q seasonally adjusted in Q4, the first rise since Q4 2023, but is still down 4.8% on a year ago down from Q3’s -3.8%. It was driven by a 2.3% q/q rise in the goods terms of trade as export prices for iron ore and gold rose in the quarter. Thus it is not surprising that the 5.9% q/q rise in profits was driven by the mining sector.

• While the goods terms of trade is off its Q2 2022 peak, it remains elevated and above the pre-Covid period (see chart). Services have not recovered from the pandemic and were almost 15% below Q4 2019 in Q4 2024.
• Both goods and services export prices rose in Q4 up 2.7% q/q and 1.1% q/q respectively.
• Import prices were also higher rising 0.8% q/q driven by services (+1.9% q/q – third straight increase), while goods increased only 0.4% q/q after three consecutive declines. 

Australia terms of trade

ACGBs (YM +6.0 & XM +5.0) are stronger but off session bests.

• The February meeting minutes clarified the discussion around the Board’s decision to cut rates 25bp. The Board determined though that the risk of holding rates “high for too long” outweighed that of having to remain restrictive for longer but that it didn’t pre-commit them to further easing.
• Cash US tsys are flat to 3bps richer in today’s Asia-Pac session.
• Cash ACGBs are 5-6bps richer with the AU-US 10-year yield differential at +13bps.
• Swap rates are 5-6bps lower.
• The bills strip has bull-flattened, with pricing +1 to +6.
• RBA-dated OIS pricing is flat to 7bps softer across meetings today.
• Nevertheless, pricing remains mixed compared to February’s pre-RBA Decision levels—meetings through May are 1bp firmer, while those beyond are 4-17bps softer. A cumulative 64 bps of easing priced by year-end.
• Tomorrow, the local calendar will see Q4 GDP data alongside S&P Global Composite & Services PMIs. RBA Deputy Governor Hauser will also deliver a keynote speech at the AFR Business Summit.
• This week, the AOFM plans to sell A$800mn of the 4.25% 21 March 2036 bond tomorrow and A$700mn of the 1.00% 21 December 2030 bond on Friday. 

NZGBs closed 3bps richer but in the middle of today’s ranges. 

• Outside of the previously outlined building permits, there hasn't been much by way of domestic drivers to flag.
• Accordingly, today’s market swings have been more closely tied to movements in US tsys. Cash US tsys are flat to 3bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s solid gains.
• Nevertheless, the NZGB 10-year underperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 6bps and 2bps wider respectively.
• Swap rates closed 3-4bps lower.
• RBNZ dated OIS pricing closed flat to 3bps softer today. Nevertheless, this still leaves pricing mixed versus pre-RBNZ policy decision levels on February 19. While pricing for the April meeting is 2bps firmer, meetings from May to November are 3-13bps softer. Currently, 26 bps of easing is priced for April, with a cumulative 77bps by November 2025.
• Tomorrow, the local calendar will see ANZ Commodity Price data.
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 0.25% May-28 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 1.75% May-41 bond.