BONDS: NZGBS: Bear-Steepening Driven By Global Factors
NZGBs closed showing a bear-steepener, with benchmark yields 6-9bps higher. The NZGB 10-year underperformed the US, with the yield differential 3bps wider at +28bps.
- Today’s supply showed mixed results with the cover ratios for the May-28 and May-41 lines showing above 4.0x. However, the NZ$200mn sale of the May-36 bond drew a more lacklustre 2.75x cover.
- While the domestic calendar featured government financial statements and construction work data, today's local market movements were likely driven by offshore developments. Key drivers included President Trump’s decision to delay auto tariffs on Canada and Mexico by a month and a dramatic shift in Germany’s spending plans for defence and infrastructure. German bunds experienced their worst day since 1990, with yields surging by as much as 30bps.
- Cash US tsys are 3-4bps cheaper in today’s Asia-Pac session after yesterday’s heavy session. After today's weekly claims trade balance and regional Fed data, focus turns to Friday's headline employment data for February.
- Swap rates closed 3-12bps higher, with the 2s10s curve steeper.
- Tomorrow, the local calendar is empty.
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JGBS AUCTION: 10-Year JGB Auction Results
The Japanese Ministry of Finance (MoF) sells Y 1,963.2bn 10-Year JGBs:
- Average Yield: 1.260% (prev. 1.140%)
- Average Price: 99.47 (prev. 100.53)
- High Yield: 1.263% (prev. 1.141%)
- Low price: 99.44 (prev. 100.52)
- % Allotted At High Yield: 37.1592% (prev. 91.7315%)
- Bid/Cover: 3.1809x (prev. 3.3570x)
AUSTRALIA: Latest CPI & GDP Lower Rate Projections But Not Estimating Easing Yet
The market has over a 90% chance of a rate cut at the RBA’s February 18 meeting and between three and four cuts by December, whereas in November this was closer to two. When we update our simple policy reaction function for Q4 CPI & OCR and Q3 GDP data, it continues to imply that rates need to be a bit higher to be in line with economic fundamentals using the RBA’s November projections but the end-2025 rate is 10bp lower than our November estimate.
- Our OCR calculations are 10bp lower than the November run across the horizon to Q2 2026 but the model still has 25bp of cumulative tightening over the four quarters to Q1 2026.
- The model includes the gap between the trimmed mean and the mid-point of the RBA’s target band. Since in November the RBA didn’t expect underlying inflation to reach 2.5% until end-2026, the equation doesn’t signal any monetary easing. It is forward looking including the inflation gap one quarter ahead.
- The contemporaneous output gap is also in the equation but doesn’t go negative enough to offset the positive inflation gap.
- We will update it again with the RBA’s new forecast set published with the February decision.
- It is worth noting that econometric analysis is just an estimate and not a forecast.
Australia RBA policy reaction function with trimmed mean
CNH: USD/CNH Back Close To 20-day EMA Support Ahead Of Tariff Deadline
USD/CNH has been drifting lower, last back near recent lows close to 7.3000. The pair found selling interest above 7.3200 in earlier dealings. This also puts us back close to the 20-day EMA support zone for the pair. At the margin, CNH is outperforming slightly softer trends for the majors against the USD. Some support is likely from the strong Hong Kong equity rise, up close to 3% at this stage, while the HS China Enterprise index is up over 3.6%.
- Focus remains on the upcoming tariff deadline. On Monday, Trump stated talks between the two sides would take place over the next 24 hours, raising hopes of delay in implementation (like Mexico and Canada) received. Trump also remarked they have received great interest in TikTok, (which may also be a factor into part of any deal).
- If we see USD/CNH break down through 7.3000, we have the 50-day EMA in the 7.2860/65 region as the next potential downside target.
