BONDS: NZGBS: Closed Cheaper Following RBNZ Gov. Orr’s Presser

USD/CNH has stabilized somewhat, still up around 0.25% in CNH terms, but holding above 7.3200. Implied vols are ticking higher. Overnight implied is above 11%, elevated but sub cycle highs back to Nov last year (near 35%). It's a similar story for other tenors, with 1 week above 7.7%, while 1 month is near 6.57%. The 6 month is at 6.67%, closer to recent cycle highs around 7%. 

• In the risk reversal space, the recent bias has been to trend higher, with the USD favoured for longer dated tenors, with RRs sitting in positive territory 2 months and beyond. Like the implied vol space though, we remain sub recent extremes in terms of recent highs.
• These biases likely reflect market uncertainty around potential new US trade policies and the broader US/Fed and China macro outlooks. The timing and size of any potential tariff announcements is uncertain, but at this juncture the broader USD backdrop is still viewed favorably, given US growth and Fed dynamics, particularly relative to China (where the central bank still has a modest easing bias.
• For the near term, the chart below plots option expiry strikes (by volumes) for the coming week, per DTCC (via BBG). The yellow line is current spot levels. For 7.5000 and 7.6000, there is just over $2.6bn in volumes for these strike levels, dominated by calls. Next is 7.4500, then 8.00.
• On the downside, 6.85 puts have just over $1bn in volumes expiring over the next week.
• Again, the right hand tail of the option expiries relative to current spot matches with market concern around early tariff rises and a break higher in USD/CNY spot. 

Fig 1: USD/CNY Option Expiries For the Next Week 

Source: MNI - Market News/Bloomberg 

In local morning trade, NZGBs closed flat to 2bps cheaper, with a flatter curve, on a subdued day of trading with cash US tsys out for Martin L. King Day. US Tsy futures (TYH5) is trading at 108-15, -0-02+ from closing levels.

• Swap rates finished unchanged.
• RBNZ dated OIS pricing close flat to 4bps firmer. 46bps of easing is priced for February, with a cumulative 106bps by November 2025.
• Tomorrow, the local calendar will see the Performance Services Index and Card Spending data. The PSI rose to 49.5 in November, the highest since February.
• However, the focus of the week will be Wednesday’s Q4 CPI data which is forecast to show moderation in headline and non-tradeables inflation.
• Headline returned to the RBNZ’s 1-3% band in Q3 and is expected to ease 0.1pp to 2.1% y/y posting a 0.5% q/q rise in Q4. The RBNZ forecasted 0.4% q/q & 2.1% y/y in November. Non-tradeables are projected to rise 0.8% q/q which would result in the annual rate moderating to around 4.7% y/y from 4.9%.
• November net migration prints on Thursday. Initial readings have tended to be revised down over H2 2024 as immigration slows. The softening labour market has discouraged people moving to NZ and encouraged New Zealanders to shift to Australia.

China and Hong Kong equities are rallying, buoyed by optimism over improved US-China relations following a positive pre-inauguration call between Donald Trump and Xi Jinping. The CSI 300 Index rose as much as 1.2%, led by gains in tech stocks like Shengyi Technology (+8.9%) and Eoptolink Tech (+7.4%). In Hong Kong, the Hang Seng Index is 2.3% higher, while the Hang Seng Tech Index jumped 3.25%, with e-commerce giants JD.com (+5.8%) and Alibaba (+3%) driving the rally.

• The market also reacted to China leaving its loan prime rates unchanged, with the one-year rate at 3.1% and the five-year rate at 3.6%. Education shares advanced after government guidance promoting AI and stricter curriculum controls, with New Oriental Education & Technology rising 6%. Additionally, reports of re-lending facilities supporting A-share buybacks have boosted sentiment, benefiting privately-run firms.
• Traders aggressively bought call options on Chinese stock-linked ETFs like FXI and KWEB on Friday, driven by optimism over a positive Trump-Xi call signaling potential easing in trade tensions. This activity pushed one-month implied volatility on FXI to its highest since mid-December, with bullish bets also driving significant gains in both ETFs.
• Overall, the markets are balancing optimism with caution over potential trade tariffs under Trump's incoming administration.