BONDS: NZGBS: Yields Up From Earlier Lows On ACGB Spillover
NZ government bond yields sit up from earlier lows. We opened with a softer tone, after US yields fell in Tuesday trade. However, 2yr to 10yr tenors are now only down marginally for the session. The 2yr is back to 2.98%, the 10yr near 4.36%. The 15 and 30yr bonds are off around 1bps. Spill over from the Australian monthly CPI beat, which aided firmer Aussie bond yields, has likely been in play. NZ 2yr swap rates have edged up slightly, last around 2.76%.
- Local news flow has been light. Via BBG: "New Zealand will introduce a Business Investor Visa that will provide a pathway to residence for business migrants who are ready to invest in, operate and grow established businesses, Immigration Minister Erica Stanford says in emailed statement." The scheme will be open to applications from this November.
- While the NZ FinMin commented on easing the pathway for new supermarket operators to set up in the country, in order to boost competition in the space.
- Tomorrow on the data front, we have July filled jobs, along with the August ANZ business confidence/activity prints.
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US TSYS: Yields Largely Unchanged In The Asia-Pac Session
The TYU5 range has been 110-26 to 110-30+ during the Asia-Pacific session. It last changed hands at 110-30, down 0-01 from the previous close.
- The US 2-year yield is trading around 3.923%.
- The US 10-year yield is trading around 4.388%.
- The 10-year yield has moved back towards its pivot within the wider range 4.10% - 4.65%, decent supply was seen around 4.30/35% first up. A decent bounce off its support but the move has failed to follow through above 4.40% for now. The Data this week should provide more clarity going forward.
- (Bloomberg) - “Strong demand for investment-grade corporate bond supply is likely to overwhelm a lack of supply this week. That can act to narrow US high-grade bond spreads.”
- (Bloomberg) - “Investors pulled $3.9 billion from Treasuries in June and added $10 billion to US and European IG company debt — a shift away from the idea that US government debt is the safest bet.”
- Data/Events: Dallas Fed Manf. Activity
Fig 1: 10-Year US Yield 120min Chart
Source: MNI - Market News/Bloomberg Finance L.P
CHINA: Bond Futures All Stronger in Morning Session
- With last week being the softest for bonds in two months, the morning session today has seen bond futures bounce back.
- Up +0.19 at 108.38, the 10 year bond future remains below all major moving averages; the nearest being the 20-day EMA of 108.70.
- The 2-year bond future is up +0.03 at 102.35 and sits just below the 20-day EMA of 102.41 which it traded through earlier in the month.
TARIFFS: Europe Large Source Of US Imports But Its Economy Is Less Exposed
A trade deal has been reached between the US and the European Union ahead of this week’s August 1 deadline. The EU was threatened with 30% tariffs but 15% was settled on, in line with Japan, but significantly higher than the current non-agricultural weighted average around 1%. Euro stoxx futures are up 1.0% in APAC trading outperforming the S&P’s +0.4%. EURUSD’s response has been muted.
- The EU is the second largest source of US imports thus a deal was likely but given the significant rise in import duties is also likely to drive higher US prices. The 2024 US deficit with the EU was $235.9bn, but still less than China’s $295.5bn.
- Exports to the US are important with 16.8% of 2024 extra-euro area goods shipments going there but that was worth only 3.2% of GDP, below the exposure of Canada, Mexico and Taiwan but similar to Japan’s.
Exports to the US (ex NAFTA) 2024 %
- The EU is the second largest source of US auto imports and Germany is fifth. Shipments will also face 15% tariffs but below the 25% duty against all US vehicle imports.
- Pharmaceuticals will also face 15% but it was threatened with up to 200%. 30% of US pharma imports come from Ireland and 57% from the EA accounting for over a quarter of total EA exports to the US.
- The 50% tariff on US imports of steel and aluminium is unchanged but both sides agreed not to tax aircraft and parts.
- Like others, Europe has frontloaded shipments to the US with them peaking at 60.8% y/y in March and easing to 7.3% y/y in May. Bloomberg data showed container ship departures from the EU-6 at around 100/day in the first week of July but that eased to 70 last week well below the pre-2025 average of 95.
US imports of pharmaceuticals & medicines % total 2024
