BONDS: NZGBS: Bull-Flattener Leaves Curve At Its Flattest Since Nov
NZGBs closed showing a bull-flattener, with benchmark yields 2-4bps lower.
- Nevertheless, NZGBs underperformed ACGBs with the NZ-AU 10-year yield differential 2bp wider on the day.
- There has no cash US tsys dealings in today’s Asia-Pac session, with Japan out on holiday.
- (Bloomberg) “New Zealand’s government has started an independent review of New Zealand’s monetary policy response to the Covid-19 pandemic. Purpose of the review is to identify lessons New Zealand could learn to improve the monetary policy response to future major events.”
- Swap rates closed 2-5bps lower, with the 2s10s curve flatter. At 1.06, the curve is at its flattest since late November (see chart).
- RBNZ-dated OIS pricing closed little changed across meetings. No tightening is priced for February, while December 2026 assigns 43bps.
- The local calendar will be light until Friday's release of BusinessNZ Manufacturing PMI, Net Migration and RBNZ Inflation Expectation data.
- Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 1.50% May-31 bond and NZ$200mn of the 4.5% May-35 bond.
Bloomberg Finance LP
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EUR: EUR/USD - Catches A Bid In Asia, Look For Sellers Back Toward 1.1665-95
The Friday night range was 1.1618 - 1.1660, Asia is currently trading around {EURUSD Curncy}. The pair is getting an early bounce in Asia as the USD gets sold on reports the FED is to potentially be indicted. We are firmly back in the 1.1450-1.1850 range which dominated the last 6 months of the year and we need a catalyst to get a break and some sort of a trend going again. It will be interesting to see how much of a headwind this news brings for the USD as it was just looking to build a head of team to test higher. On the day look for sellers to reemerge in EUR/USD back toward the 1.1665-1.1695 area.
- CFTC Data of last week shows Asset Managers slightly increasing their long positions in the EUR, +424 424(Last +416 483). The Leveraged community reduced their own longs slightly which have only recently been built up, +22279(Last +24505).
- The EUR/USD Average True Range for the last 10 Trading days: 44 Points
Fig 1 : EUR CFTC Data
Source: MNI - Market News/Bloomberg Finance L.P
AUSSIE BONDS: AU-NZ 10Y Differential At FV
The AU–NZ 10-year yield differential currently sits at +28bps, around 10–15bps below its recent peak of approximately +40bps, the widest since October 2020.
- The widening in the long-end spread has been mirrored by shifts in market expectations for the policy rate differential over the next year, as reflected in the AU–NZ 1-year forward 3-month swap (1Y3M) spread.
- A simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past two years shows that the 10-year differential is around fair value based on the regression model.
Figure 1: AU-NZ: 10-Year Yield Differential Vs. FV
Source: Bloomberg Finance LP / MNI
USD: BBDXY - Knee-Jerk Lower To Start The Week On FED News
The BBDXY range Friday night was 1209.18 - 1213.00, Asia is currently trading around {BBDXY Index}. The USD was looking like it was reestablishing some upward momentum to start the year, but this morning's news of possible indictments on the FED have put a dent in that for now. The market's perception is that this is clear political pressure being brought to bare on the FED and so has worrying implications for its so-called independence. The USD has understandably had a knee-jerk lower in Asia, the question is if that move is enough considering what's at stake. On the day, I suspect rallies could remain heavy in the short-term as the market tries to work through what this means. First support is back between 1205-1207, the USD has lacked any clear direction for at least 6 months now and the wider 1185-1230 range looks set to continue for now. This lack of a trend is being reflected in the CFTC data which shows very little positioning in the USD to start the year.
- The Market Ear on X - "US flip from exceptionalism to expansionism is best case for a contrarian US dollar long" (Hartnett)
- Barchart on X - “Google Searches for Dollar "Debasement" soared last quarter to the highest level in history.”
- CFTC Data last week shows Asset managers turning slightly entering the first quarter, -1318(Last +1168). The Leveraged community has turned slightly long after rapidly reducing its short into the end of year, +821(Last +45).
- The BBDXY Average True Range for the last 10 Trading days: 381 Points
Fig 1: USD Index CFTC Data
Source: MNI - Market News/Bloomberg Finance L.P
