BONDS: NZGB Curve Twist Steepens On Global Impulses, Swap Spreads Narrow Again
Wider core global FI moves likely allowed the NZGB space to correct from cheapest levels on Friday, with a lack of domestic headline flow evident.
- The bid in the shorter end of the ACGB curve/EFP narrowing provided some trans-Tasman impetus, while light twist steepening in U.S. Tsys and post-holiday catch up weakness in the longer end of the JGB curve were also also observed.
- The major NZGB benchmarks finished 2bp richer to 2bp cheaper on Friday, twist steepening, pivoting around 7s.
- Meanwhile, swap rates were lower across the curve, resulting in swap spread tightening. This extended the recent narrowing of swap spreads witnessed since NZGBs were formally included in the FTSERussell WGBI (after some widening into that event), while the receiver side flows observed in Australian swaps may have also helped (although that dynamic faded a little as Sydney trade wore on).
- RBNZ dated OIS ticked incrementally lower on the day, with ~68bp of tightening now priced for this month’s meeting and a terminal OCR of just below 5.25% observed.
- Next week’s local docket is headlined by the release of the latest batch of quarterly inflation expectations data, monthly card spending data and the RBNZ’s Review and Assessment of the Formulation and Implementation of Monetary Policy.
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Historical bullets
JGBS: Sedate Morning Trade
JGB futures oscillated either side of unchanged levels during the Tokyo morning, hitting the lunch bell+1, sticking to a tight range, while cash JGBs sit 1bp richer to 1bp cheaper across the curve. There hasn’t been much in the way of a meaningful domestic catalysts, leading to a lack of trading conviction during the morning session.
- Offer/cover ratios nudged higher in the latest round of BoJ Rinban operations, perhaps as participants use the move away from recent cheaps in those maturities as a selling opportunity:
- 1- to 3-Year: 3.59x (prev. 2.74x)
- 3- to 5-Year: 2.50x (prev. 1.60x)
US TSYS: A Touch Richer, Philippines Issuance Pushes Space Off Best Levels
Tsys continue to coil in relatively narrow ranges, with the major benchmarks running 0.5-1.5bp richer across the curve at typing. News of the Philippines starting the marketing a 3-part USD bond (5-, 10- & 25-Year paper) is applying some light pressure, with the space back from best levels in recent trade. Some spill over from the eventual richening in NZGBs & ACGBs post-RBNZ likely provided support before that. TYZ2 operates in the middle of its 0-07+ range, last -0-03 at 113-13.
AUSSIE BONDS: Firmer On Net Post-RBNZ
ACGBs have tracked the post-RBNZ gyrations in NZGBs, initially cheapening before richening, with a no lasting bearish impulse derived from the in line with expected 50bp OCR hike across the Tasman (which was coupled with a 50/75bp rate hike debate). See our earlier bullets for more colour on that matter. YM & XM have showed through their overnight peaks, but there hasn’t been much follow through. The former is +5.5, while the latter is +9.5. Wider cash ACGB trade sees 5-9bp richer, with 10s outperforming. Bills run -1 to +7 through the reds, with twist flattening in play.
