GLOBAL: President Trump via Social Media

NZGBs are 4–5bps cheaper today, with the NZ–US 10-year yield differential widening to +15bps, its highest level since late May, after reaching as low as -10bps earlier this month.

• The 10-year differential had narrowed from around +50bps in late March, when NZ's long-term issuer default rating outlook was revised to negative from stable.
• At around +50bps, the differential was near the top of its two-year trading range.
• Since then, the NZ–US 1Y3M swap spread narrowed by around 100bps, with the 10-year yield differential compressing broadly in line.
• More recently, however, the NZ–US 1Y3M swap spread has widened by around 50bps during July, reflecting lower US rates following softer inflation data and higher NZ rates ahead of tomorrow's Q2 CPI release.
• A simple regression of the 10-year yield differential against the NZ–US 1Y3M swap spread over the past three years suggests the current differential is around 3bps below its regression-implied fair value. 

Figure 1: NZ-US 10-Year Yield Differential

 Source: Bloomberg Finance LP / MNI

Being quite topical Dean who is head of strategic futures at OpenAI wrote a thread on X on his observations and where things might be heading for those interested. https://x.com/deanwball/status/2078133895766114412?s=20

• "I would guess that the Trump Administration will at some point realize that their best strategy here would be to create large amounts of regulatory risk around the use of open-weight Chinese models."
• Ben Hunt replied in the comments: "Good post! Either the USG co-opts open source by putting it on USG regulatory rails and budget authority, or soft bans open source with regulatory FUD. There is no future where open source runs w/out USG control. This is Bitcoin all over again."

The AUD & NZD have both had quiet starts, with risk holding up ok considering the escalation in the Middle-East over the weekend. The KOSPI(-4%) which was closed on Friday is playing catch up to the risk-off sentiment but everything else seems to be more or less behaving itself for the moment. If this risk-off sentiment does expand to start this week can the AUD and NZD continue to ignore it ?

• {AUDUSD Curncy} - 0.6985, +0.05%
• {NZDUSD Curncy} - 0.5840, -0.03%
• {AUDNZD Curncy} -  1.1960, +0.10%