BONDS: NZGBS: Closed Sharply Richer But Post-Tariff Gains Pared
NZGBs closed 6-11bps riche but well off session bests of 10-14bps richer. The move away from yield lows tracked the slight paring in gains by US tsys through today’s Asia-Pac session. Cash US tsys are currently dealing 5-7bps richer in today's Asia-Pac session.
- There has been a strong risk-off tone in today’s Asia-Pac session as markets digest US President Trump's announcement on reciprocal tariffs. That said, US equity futures are off their worst levels at the time of writing.
- Broadly the universal tariff of 10% on all US imports was lower than feared, but the reciprocal tariff levels for some regions/countries were notably higher. For China it was 34%, which came on top of the existing 20% tariff level. The EU's reciprocal tariff was 20%, while Japan's was 24%.
- Swap rates closed 6-10bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed 2-6bps softer across meetings. 26bps of easing is priced for April, with a cumulative 77bps by November 2025.
- Tomorrow, the local calendar will be empty.
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BONDS: NZGBS: Richer But Off Bests & Underperformed $-Bloc
NZGBs closed 3bps richer but in the middle of today’s ranges.
- Outside of the previously outlined building permits, there hasn't been much by way of domestic drivers to flag.
- Accordingly, today’s market swings have been more closely tied to movements in US tsys. Cash US tsys are flat to 3bps richer, with a steepening bias, in today’s Asia-Pac session after yesterday’s solid gains.
- Nevertheless, the NZGB 10-year underperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 6bps and 2bps wider respectively.
- Swap rates closed 3-4bps lower.
- RBNZ dated OIS pricing closed flat to 3bps softer today. Nevertheless, this still leaves pricing mixed versus pre-RBNZ policy decision levels on February 19. While pricing for the April meeting is 2bps firmer, meetings from May to November are 3-13bps softer. Currently, 26 bps of easing is priced for April, with a cumulative 77bps by November 2025.
- Tomorrow, the local calendar will see ANZ Commodity Price data.
- On Thursday, the NZ Treasury plans to sell NZ$250mn of the 0.25% May-28 bond, NZ$200mn of the 4.25% May-36 bond and NZ$50mn of the 1.75% May-41 bond.
JGBS AUCTION: Very Poor Demand Metrics For 10Y Auction
The 10-year JGB auction delivered very poor results, with the low price falling well short expectations at 98.26, according to the Bloomberg dealer poll. Moreover, the cover ratio declined to 2.6566x, the weakest since October 2021, from 3.1809x in the previous auction and the tail lengthened dramatically to 0.21 from 0.03.
- This performance came despite the auction offering an outright yield 10-15bps higher than last month. Additionally, the yield curve between 2- and 10-year bonds was slightly steeper compared to the prior month.
- Improving sentiment toward global long-end bonds and slightly less aggressive expectations of further near-term tightening by the BoJ didn’t appear to support demand.
- In early afternoon Tokyo trading, the cash 10-year JGB is 2bps cheaper from pre-auction levels, while JGB futures have gapped cheaper to session lows.
JGBS AUCTION: 10-Year JGB Auction Results
The Japanese Ministry of Finance (MoF) sells Y 1,982.8bn 10-Year JGBs:
- Average Yield: 1.404% (prev. 1.260%)
- Average Price: 98.24 (prev. 99.47)
- High Yield: 1.429% (prev. 1.263%)
- Low price: 98.03 (prev. 99.44)
- % Allotted At High Yield: 18.3344% (prev. 37.1592%)
- Bid/Cover: 2.6566x (prev. 3.1809x)
