BONDS: Post-RBNZ Rally Stalls Ahead Of W/E
NZGBs closed 2-3bps cheaper, with the NZ-US 10-year differential 1bp wider at flat.
- At this level, the differential sits in the lower half of the -20bps to +40bps range observed year to date. For context, it was around +30bps in mid-September, prior to the release of much weaker-than-expected Q2 NZ GDP data.
- A simple regression of the 1Y3M forward swap spread against the 10-year yield differential over the past 18 months suggests the current differential is about 6bps below its estimated fair value of +8bps. (See chart)
- Swap rates closed 2-3bps higher. As noted previously, the 30bp decline in the 2-year rate since the release of Q2 GDP in late September appeared increasingly over-extended, with the rate approaching channel resistance. A period of consolidation, therefore, looks more likely unless another negative economic shock emerges.
- “NZ Finance Minister Nicola Willis expressed optimism about the country’s economy, saying she was confident it had returned to growth last quarter as interest-rate cuts help boost sentiment.”- BBG
- RBNZ dated OIS pricing is little changed across meetings. 23bps of easing is priced for November, with a cumulative 33bps by February 2026.
- On Monday, the local calendar will see Performance Services Index and Net Migration data.
Figure 1: NZ-US 10-Year Yield Differential
Source: Bloomberg Finance LP / MNI
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JGBS AUCTION: JGBS 5yr Auction Result
The Japanese Ministry Of Finance (MoF) sells ¥ 1,895.5bn 5-Year JGBs:
- Average Yield: 1.119% (prev. 1.056%)
- Average Price: 99.91 (prev. 99.74)
- High Yield: 1.126% (prev. 1.062%)
- Low price: 99.80 (prev. 99.71)
- % Allotted At High Yield: 80.4302% (prev. 67.7077%)
- Bid/Cover: 3.70 (prev. 2.9616x)
INDIA: US Trade Deficit With India Has Widened Over Last 5 Years
The FT reported that President Trump told European representatives that he’s prepared to impose the same tariffs as Europe on China and India for buying Russian energy. However, Trump also said he had spoken with his “good friend” Indian PM Modi and that trade negotiations were ongoing between them and that he expects “a successful conclusion for both”.
- On August 27 US import duties of 50% came into effect on Indian products. 25% was the reciprocal tariff, down only 1pp from the initial rate proposed, and another 25% was punitive for India’s significant imports of Russian oil which it has refused to stop purchasing. The US’s main export to India is oil and gas.
- India’s 2024 trade deficit with the US had almost doubled since 2020 but 2025 is on track to see it grow sharply but India has frontloaded shipments since March to beat duties and they could ease off over H2.
US trade deficit $bn 12mth sum
Source: MNI - Market News/LSEG
- India has one of the higher export shares to US in the region at 20% in 2024 but as a share of its economy it is low at only 2.6% of GDP.
- The main sectors impacted by higher US import duties are pharmaceuticals followed by miscellaneous manufacturing commodities, communications equipment, apparel and textile furnishings.
- India is only the 10th largest source of US merchandise imports worth 2.7% of the total and in terms of Asian countries it is behind Taiwan and South Korea who are facing US tariffs of 20% and 15% respectively. 5.2% of US pharmaceutical imports come from India, the 5th largest.
US imports of pharmaceuticals & medicines % total 2024
FOREX: JPY Crosses - Momentum Higher Stalls
US Equities drifted back towards all-time highs as it shrugged off another poor labour input and kept its focus on upcoming rate cuts, ignoring the concerns for growth. This morning US futures have opened slightly higher, E-minis +0.20%, NQU5 +0.10%. The JPY crosses move higher has again stalled, belatedly giving up all their Monday morning gains on the Ishiba news.
- EUR/JPY - Overnight range 172.14 - 173.16, Asia is trading around 172.50. The pair erased all its Mondays gains and has come back towards the middle of its recent range. The range looks to be 171.00-174.00 for now.
- GBP/JPY - Overnight 198.80 - 199.78, Asia trades around 199.35. This pair stalled again just above 200.00, a clear sustained break above 200.00 is needed to regain momentum higher.
- NZD/JPY - Overnight range 87.17 - 87.56, Asia is currently dealing 87.35. The pair’s move higher stalled and drifted lower overnight. Short-term looks to be 86.50-88.00 a break of which will see direction reassert itself. My bias remains to the downside.
- CNH/JPY - Overnight range 20.5634 - 20.7018, Asia is currently trading around 20.6900. This pair has remained above its pivotal 20.30/20.40 support. The pair continues to trade comfortably within its recent 20.40-21.00 range.
Fig 1 : NZD/JPY Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
