BONDS: NZGBS: Closed At Worst Levels But Only Modestly Cheaper
Aug-06 04:38
NZGBs closed 3bps cheaper across benchmarks, with the NZ-US 10-year yield differential little changed on the day.
- Cash US tsys are flat to 2bps cheaper, with a steepening bias, in today's Asia-Pac session after yesterday's twist-flattener. Today’s US calendar will see BA Mortgage Applications.
- NZ employment was weaker in Q2 than the RBNZ projected in May declining 0.1% q/q and 0.9% y/y, in line with consensus, after a downwardly-revised 0.0% q/q & -0.7% y/y in Q1. The unemployment rate rose 0.1pp to 5.2%, highest since Covid-impacted Q3 2020, but as the RBNZ forecast. The next rate decision is on August 20 and will include an updated outlook. With job shedding continuing and activity indicators remaining lacklustre and inflation in the band, another 25bp rate cut is likely.
- Swap rates closed 1-2bps higher, with the 2s10s curve little changed.
- RBNZ dated OIS pricing closed slightly firmer across meetings. 23ps of easing is priced for August, with a cumulative 41bps by November 2025.
- Tomorrow, the local calendar will see RBNZ Inflation Expectations data.
- The NZ Treasury also plans to sell NZ$225mn of the 4.50% May-30 bond, NZ$175mn of the 4.50% May-35 bond and NZ$50mn of the 1.75% May-41 bond.
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US TSYS: Asia Wrap - Yields Open Lower After Long Weekend
Jul-07 04:38
The TYU5 range has been 111-08+ to 111-12+ during the Asia-Pacific session. It last changed hands at 111-10+, up 0-03+ from the previous close.
- The US 2-year yield has moved lower trading around 3.855%, down 0.02 from its close.
- The US 10-year yield has edged lower trading around 4.33%, down 0.02 from its close.
- The 10-year yield saw a strong bounce in reaction to the better NFP print. This 4.35/40% area offers those who would like to express a long the opportunity to fade. A sustained close back above 4.40/4.45% area though would not be great for the bulls and would see more of the longs prepared back.
- US President Trump has posted via Truth Social that the US will start delivering letters outlining tariff levels to various countries starting 12pm Monday, US eastern time. Trade deals will also be announced at the same time.
- (Bloomberg) -- The Treasury’s willingness to fund more at the short-end of the yield curve will further compromise the Federal Reserve’s independence and increasingly leave monetary policy de facto in fiscal hands. The dollar will be a casualty, and the yield curve will steepen.
- Data/Events: Bond investors will be focusing on the Fed Minutes and the demand for 10 & 30-year maturities this week.
Fig 1: 10-Year US Yield Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
STIR: RBNZ-Dated OIS Firmer Than Pre-RBNZ Decision Levels (May)
Jul-07 04:22
RBNZ dated OIS pricing is little changed across meetings today. 3bps of easing is priced for this week's meeting, with a cumulative 31bps by November 2025.
- Notably, pricing is 9-15bps firmer across 2025 meetings compared to pre-RBNZ decision levels on May 28.
- (Bloomberg) -- A majority of members in the NZIER Monetary Policy Shadow Board recommend that the Reserve Bank of New Zealand keep the cash rate on hold at 3.25% at the July 9 review. While activity remains soft in the New Zealand economy, there are both upside and downside risks to inflation in the near term, given the recent pick-up in annual CPI inflation and heightened global risks.
Figure 1: RBNZ Dated OIS Today vs. Pre-May RBNZ Decision Levels (%)
Source: MNI - Market News / Bloomberg
CHINA: Bond Futures Drift Lower in the Morning Session
Jul-07 04:06
- China's bond futures have drifted marginally lower in a lackluster trading session this morning despite a sizeable liquidity withdrawal from the OMO.
- The 10yr is down -0.01 to 109.10 to maintain its position above all major moving averages. The nearest being the 20-day EMA of 109.02
- The 2yr is down -0.01 at 102.50 and is between the 50-day EMA of 102.50 and the 20-day EMA of 102.49
- The CGB 10yr is at 1.64%.
- Wednesday sees the release of June PPI and CPI, which have both struggled to post positive outcomes in recent months.
