BONDS: NZGBS: Short-End Catch-Up While Long-End Underperforms $-Bloc
NZGBs closed with a mixed performance and a steeper curve, as the 2-year yield finished 4bps lower, while the 10-year yield rose by 3bps.
- Despite today’s gains in the 2-year NZGB, the move appears to be more of a timing adjustment rather than a fundamental shift, especially as swap rates closed flat to 3bps higher, with the 2s/10s curve steepening.
- Yesterday, swap rates ended flat to 5bps lower, with a steeper 2s/10s curve and significantly tighter implied swap spreads. The rally in NZ swaps reflected positive spillover from ACGBs, which strengthened following weaker-than-expected Q3 GDP data in Australia.
- In contrast to swaps, the NZGB 2/10 curve exhibited a bear-flattener yesterday, with benchmark yields flat to up 3bps, indicating diverging market dynamics between swaps and government bonds.
- Compared to the $-bloc, the NZGB 10-year underperformed its counterparts today, with the NZ-US and NZ-AU yield differentials closing 6bps and 3bps wider respectively.
- RBNZ dated OIS pricing is flat to 5bps softer across meetings. 44bps of easing is priced for February, with a cumulative 104bps by November 2025.
- Tomorrow, the local calendar is empty, with the next key release being Mfg Activity Volume on Wednesday.
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RBA: Another Hawkish Hold, Board Remains “Vigilant” To Upside Inflation Risks
The RBA left rates at 4.35% in November as was unanimously expected. The tone of the statement and guidance paragraphs was little changed and suggested another hawkish hold. The Board remains “vigilant to upside risks to inflation” and didn’t rule “anything in or out”. It is still going to be “some time yet before inflation is sustainably in the target range”. Thus, Governor Bullock will probably reiterate at the 1530 AEST press conference that rate cuts are unlikely in the “near term”.
- The statement was updated for the new data released since the last meeting on September 24. This included a couple of mildly hawkish additions – that some labour market indicators had “recently stabilised” and there is “tentative evidence of an increase in spending” in Q3 as income growth rises.
- The RBA notes that the November forecasts are “very similar” to August’s. The revisions to the trimmed mean profile were only by 0.1pp, but it meant that it should be at the top of the 2-3% band in Q2 2025 rather than Q4 but the mid-point will still be Q4 2026, which is what the RBA highlights in the statement.
- Despite recent revisions, demand continues to exceed supply. Growth was revised down across the forecast horizon. Household consumption growth was revised lower near term but was then little changed. Public demand was revised down in H2 2024 but up from 2025 and 2026. A federal election is due by mid-May 2025.
- Given that easing of the labour market appears to have “stabilised”, employment growth was revised higher for Q4 2024 and Q2 2025 but the unemployment rate was unchanged. Wages were revised down across the forecast period.
- Productivity growth remains a problem and was revised lower across forecasts.
ASIA STOCKS: Some Inflows Return Following Consistent Outflows.
- Some signs of positivity yesterday in terms of Asian equity flows. South Korea saw +$261 of inflows following four successive days of outflows. Indonesia, Thailand , Malaysia all turned positive after successive days of outflows but for the Philippines outflows continued.
• South Korea: Recorded inflows of +$261m yesterday, bringing the 5-day total to -$689m. YTD flows remain positive at +$7.365b. The 5-day average is -$138m, the 20-day average of -$152m and the 100-day average of -$66m.
• Taiwan: Experienced outflows of -$230m yesterday, totaling -$1,644m over the past 5 days. YTD flows are negative at -$11,789b. The 5-day average is -$329m, worse than the 20-day average of +$21m and the 100-day average of -$139m.
• Indonesia: Posted inflows of +$17m yesterday, bringing the 5-day total to -$136m. YTD flows remain positive at +$2.540b. The 5-day average is -$27m, in line with the 20-day average with the 100-day average of +$32m.
• Thailand: Recorded inflows of +$1m yesterday, totaling -$261m over the past 5 days. YTD flows are negative at -$3.497b. The 5-day average is -$52m, the 20-day average is -$31m and the 100-day average of -$10m.
• Malaysia: Posted inflows of +$37m yesterday, contributing to a 5-day outflow of -$194m. YTD flows stand at +$414m. The 5-day average is -$39m, worse than the 20-day average of -$10m with the 100-day average +$6m.
• Philippines: Saw outflows of -$13m yesterday, with net outflows of -$63m over the past 5 days. YTD flows are positive at +$31m. The 5-day average is -$13m, worse than the 20-day average of -$1m and the 100-day average of +$5m.
BONDS: NZGBS: Subdued Session Ahead Of Key Events, Q3 Jobs Tomorrow
NZGBs closed 1bp cheaper after a very subdued local session ahead of the RBA Policy Decision, (after-market) and the US Presidential Election later today.
- Earlier today the RBNZ released its Financial Stability Report. The report said the country is experiencing a pronounced economic downturn that could get worse.
- Swap rates closed 1bp lower to 1bp higher, with a flattening bias.
- RBNZ dated OIS pricing closed flat to 2bps firmer across meetings. A cumulative 97bps of easing is priced by February, with 56bps by year-end.
- Q3 labour market data including wages are released tomorrow. They are expected to show a contraction in employment with the unemployment rate rising to 5% driven by lower growth and job shedding.
- This softening in labour demand should help to ease wages growth, as well as no new public sector agreements, which drove the Q2 increase. The RBNZ meets on November 27 and is likely to cut rates again but the size of the move is currently uncertain.
- On Thursday, the NZ Treasury plans to sell NZ$200mn of the 0.25% May-28 bond, NZ$250mn of the 4.50% May-35 bond and NZ$50mn of the 5.0% May-54 bond.
