BONDS: NZGBS: A False Break Higher For Yields? Next Week Q3 Jobs Data
NZGB yields are finishing the weak on a softer note, down around 2-4bps across the curve, with the back end leading. The 2yr and the 10yr benchmarks are back under 20-day EMA resistance points, which were tested earlier this week. In yield terms, this is underperforming the US and Australian market trends. The NZ-US spread is back close to -4bps, near recent lows. Obviously catalysts today haven't that apparent for the yield losses seen. Still, we did have a softer ANZ NZ consumer sentiment print earlier, while RBNZ Monetary Policy Committee (MPC) external member Prasanna Gai noted the negative demand impact of tariffs, which has offset some the easing the central bank has done.
- The 2yr swap rate is also drifting lower, last down close to 2bps and near 2.38% (which is also back under the 20-day EMA resistance area).
- The implication from this is potentially more work for the RBNZ to do (this is our bias, not Gai's). We already have close to 25bps priced for the Nov meeting. Terminal rate pricing is around 2.14/15% for mid 2026, little changed.
- The consumer sentiment reading suggested that the recovery backdrop still remains challenging.
- Note next week we get the Q3 jobs report on Wednesday.
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JGBS: Cash Bonds Little Changed At Lunch
At the Tokyo lunch break, JGB futures are stronger, +11 compared to settlement levels.
- The Q3 Tankan survey printed in line with expectations and Q2 but FY25 capex intentions increased 1pp to 12.5%. Large company business conditions have been moving sideways at a solid level since the start of last year, especially for the non-manufacturing sector.
- The large manufacturers' index rose 1 point to 14 in Q3 while the outlook for Q4 is forecast to deteriorate 2 points. The series has not been affected by new US tariffs and the 2025 average is slightly higher than 2024's.
- Non-manufacturers' conditions were steady at 34, well above the series average of +7.3, with the outlook at 28.
- Small non-manufacturers are also outperforming manufacturers with the index at 14 (down 1 point) compared to +1 (stable). The outlook for both sectors improved 1 point.
- The September BoJ summary of opinions showed a bias towards a resumption of tightening.
- (Bloomberg) Japan will get its second prime minister in just over a year when the ruling Liberal Democratic Party holds a leadership election on Oct. 4.
- Cash US tsys are slightly mixed, with a steepening bias, in today's Asia-Pac session after yesterday's modest twist-steepener.
- Cash JGBs are little changed across benchmarks.
- Swap rates are flat to 1bp lower, with a steepening bias. Swap spreads are mixed.
AUSSIE BONDS: Holding Cheaper, Market Continues To Price Out RBA Cut
ACGBs (YM -4.0 & XM -5.5) remain weaker.
- S&P Global PMI Manufacturing Index falls to 51.4 from 53 in Aug.
- Cash US tsys are slightly cheaper in today's Asia-Pac session after yesterday's modest twist-steepener.
- Cash ACGBs are 4-7bps cheaper with the AU-US 10-year yield differential at +22bps.
- The latest ACGB Dec-34 supply achieved a weighted average yield that printed 0.40bp through prevailing mids (per Yieldbroker). However, the cover ratio decreased to 2.1033x, thelowest since its debut in 2023, from 3.1708x.
- The bills strip is -4 to -6 beyond the first contract.
- RBA-dated OIS pricing has firmed modestly across meetings following yesterday’s RBA Policy Decision. Pricing across meetings is 1-4bps firmer than yesterday’s pre-RBA levels. Notably, this post-RBA move leaves pricing some 10-19bps firmer than last Wednesday’s pre-CPI levels.
- A 25bp rate cut in October is given a 35% probability, with a cumulative 11bps of easing priced by year-end.
STIR: RBA Dated OIS’ Firming Since August CPI Extends After RBA Decision
RBA-dated OIS pricing has firmed modestly across meetings following yesterday’s RBA Policy Decision.
- At the time of writing, pricing across meetings was 1-4bps firmer than yesterday’s pre-RBA levels.
- Notably, this post-RBA move leaves pricing some 10-19bps firmer than last Wednesday’s pre-CPI levels.
- A 25bp rate cut in October is given a 35% probability, with a cumulative 11bps of easing priced by year-end.
Figure 1: RBA-Dated OIS – Current Vs. Pre-CPI
Source: Bloomberg Finance LP / MNI
