BONDS: NZGBS: Yields Mixed, 2/10s Curve Off Highs, NZ-US 10yr At +30bps
NZGB yields are mixed, with the 2yr higher, +2bps to 2.72%, while the rest of the curve is weaker in yield terms (down around 1.5-1.8bps). The 10yr is back to 4.44%. The back end moves are consistent with regional/US Tsy yield trends, so far in Tuesday trade and reverses some of yesterday's solid yield gains. Local news flow has been light, with markets winding down ahead of the Christmas/NY break.
- Broader ranges are holding for NZGBs, with some selling interest emerging when 10yr yields dip under the 4.40% region. For the 2yr we have edged up from a test of Dec lows under 2.70%. The 2/10s curve is slightly flatter at +172bps, but has been in a strong uptrend since the start of Dec.
- The 2yr swap rate (NDSO) is firmer, last around 2.76%, bouncing off 20-day EMA support (near 2.70%), in recent sessions.
The NZ-US 10-yr spread is relatively steady around +30bps, little changed today, but up from around flat in Oct/Nov, which fits with the respective central bank outlooks (with the Fed seen more at risk of cutting in the first part of 2026 compared to the RBNZ).
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
