BONDS: NZ-US 10Y Diff In Top Half Of 2025's Range
NZGBs are currently showing a bull-flattener, with benchmark yields 3-5bps lower. The NZGB 10-year has slightly underperformed the US 10-year since yesterday’s close, with the NZ-US yield differentials 3bps wider.
- At +17bps, the NZ-US 10-year differential is in the top half of the -20bp to +40bps range seen this year.
- Moreover, a simple regression analysis of the 3-month forward swap rate spread (1Y3M) over the past 18 months indicates the 10-year yield differential is around 4bps below its estimated fair value of +21bps.
- Notably, the regression error has fluctuated within a range of ±15bps 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: Bloomberg Finance LP / MNI
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JGBS AUCTION: 30Y Supply Faces A Much Higher Yield
The Japanese Ministry of Finance (MoF) will today sell Y800bn of 30-Year JGBs. The MoF last sold 30-year debt on 8 April 2025.
- This month’s 30-year JGB auction features an outright yield approximately 50–55 basis points higher than last month’s issuance. Notably, the current yield is hovering just below its cycle high of 3.0%.
- The 10s30s yield curve is now 5–10 basis points steeper than at the time of the previous auction, though still around 10 basis points below its recent peak.
- On a relative value basis, the 30-year bond remains largely unchanged versus last month when viewed through the 20-/30-/40-year butterfly spread.
- Today's supply comes amid weakening sentiment toward longer-dated global bonds, weighed down by positive trade deal developments, consistently strong U.S. economic data, and a further pushback in expectations for Fed rate cuts.
- Against this backdrop, today’s 30-year auction will serve as a key gauge of investor appetite in the face of heightened uncertainty.
- Results are due at 0435 BST / 1235 JT.
AUSTRALIA DATA: NAB Bus Conditions Continue To Trend Lower, Labor Costs Steady
The NAB Australian business survey saw conditions ease to +2 from a revised +3 reach in March. On the confidence front, the reading edged up to -1 from -3 prior. These headline measures aren't suggesting a sharp turnaround in domestic economic growth momentum in the near term.
- The first chart below plots NAB business conditions against GDP growth in y/y terms. Whilst the conditions measure is above the level of GDP growth, conditions have been trending lower since a cycle peak back in late 2022.
- Business confidence has largely tracked sideways in recent years, and struggled above to sustain positive readings.
Fig 1: NAB Australian Business Conditions Versus GDP Growth Y/Y
Source: NAB/MNI - Market News/Bloomberg
- In terms of the detail, trading conditions edged down to 5.2 from 5.7, while profitability fell to -4.2 from around flat prior. This is the weakest profit reading since 2020.
- The employment sub index edged down to 3.5, but has been fairly steady. The labour cost measure was unchanged at 1.6 and remains close to unchanged since late last year. The second chart below is of this metric versus the wage index published by the ABS (in y/y terms). This measure for Q1, prints tomorrow, with the y/y outcome projected unchanged at 3.2%y/y (which is consistent with recent NAB outcomes).
- The prices measure rose to 0.8 from 0.6 in March, but has been sub 1.0 since June last year.
Fig 2: NAB Australian Labour Costs Versus Wages Growth Y/Y
Source: NAB/MNI - Market News/Bloomberg
CHINA PRESS: China Car Sales And Production Exceed 10 Million
Auto production and sales in China hit 10.1 and 10.0 million units in the first four months of the year, up 12.9% and 10.8% y/y, marking the first time both exceeded 10 million simultaneously, according to the China Association of Automobile Manufacturers. New energy vehicle (NEV) production and sales reached 4.4 million and 4.3 million, up 48% and 46%, with NEVs accounting for 42% of total sales. Vehicle exports rose 6% to 1.9 million units, including 642,000 NEVs, up 52.6% y/y.
