KRW: Sub 1470 But Still Underperforming Equities, Surveys Suggest Low Growth
Mar-26 04:17
Spot USD/KRW has drifted a little higher in the first part of Wednesday dealings, the pair last near 1466, off a little over 0.20% in won terms. We sit off recent highs just above 1471, but dips have remained fairly shallow for the pair.
- The local equity backdrop is positive, with the Kospi up close to 1.0%, but the index remains within recent ranges. Positive headlines around a partnership between Microsoft and KT Corp on AI is aiding sentiment.
- Offshore investors have been very modest sellers of local equities so far this week, which is consistent with trends elsewhere in the region (ex India, which has seen strong inflows).
- Again though, this is only providing marginal benefit to the won. USD/KRW looks too high relative to current onshore equity levels.
- Earlier we had manufacturing sentiment data. It improved modestly to 91.9 from 90.1 for manufacturing, while non-manufacturing rose to 82.9 from 81.7. The non-manufacturing index is barely above recent lows, which still suggests a challenging local economic backdrop. This follows yesterday's downtick in consumer confidence.
- We still await Yoon's impeachment outcome, which is still casting a shadow over the domestic backdrop.
- The local data calendar is now empty until Feb IP prints next Monday.
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CHINA: China's 10YR Bond Future Down for Third Day.
Feb-24 03:55
- China’s main bond futures headed in different directions at the start of the week.
- China’s 10YR bond future is down -.18 at 108.075, marking the third trading day in a row of declines.
- The move lower sees the 10YR future inching towards the 100-day EMA of 108.02, with the 50-day EMA being dragged lower at 108.61.
- The 2YR bond future is up +0.05 today at 102.62, below all major technical levels.
- Cash market is weaker today also with government bonds up to 1bp higher in yield across most maturities.
- Equity markets too are down today with key bourses down by -0.10% to -0.50%
- This week sees the decision on the 1-year Medium Term Lending Facilities with market expectations for now change at 2.00%, but with an increase in volume from CNY200bn to 300bn
BONDS: NZGBS: Closed Mid-Range With A Bull Flattener
Feb-24 03:45
NZGBs closed showing a bull-flattener, with benchmark yields 2-5bps lower. Nevertheless, NZGBs finished mid-range, with the 10-year underperforming its Australian counterpart.
- The AU-NZ 10-year differential finished at -9bps compared to the recent high of +10bps in early November, which marked the highest level since August 2022. However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 18 months shows that the 10-year differential is around 14bps above fair value based on the regression model.
- NZ Q4 2024 retail sales (ex inflation) were stronger than forecast, rising 0.9% q/q, against a 0.5% market expectation. This was the firmest q/q print since the end of 2021. This shows the impact of RBNZ easing beginning to benefit parts of consumer spending.
- Swap rates closed 3-6bps lower, with the 2s10s curve flatter.
- RBNZ dated OIS pricing closed little changed out to August but 3-5bps firmer beyond. 27 bps of easing is priced for April, with a cumulative 58 bps by November 2025.
- Tomorrow, the local calendar is empty.
- On Thursday, the NZ Treasury plans to sell NZ$225mn of the 3.00% Apr-29 bond, NZ$225mn of the 3.50% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.
AUSSIE BONDS: AU-NZ 10Y Yield Differential Too High
Feb-24 03:17
The AU-NZ 10-year yield differential is 5bps lower today, standing at -12bps compared to the recent high of +10bps in early November, which marked the highest level since August 2022.
- The recent decline in the 10-year yield differential between Australia and New Zealand has mirrored a similar move in the AU-NZ 1-year forward 3-month swap rate (1Y3M) spread.
- However, a simple regression analysis of the AU-NZ 10-year yield differential against the AU-NZ 1Y3M spread over the past 18 months shows that the 10-year differential is around 12bps above fair value based on the regression model (-11bps compared to a fair value of -23bps).
- The 1Y3M differential is a proxy for the expected relative policy path over the next 12 months.
Figure 1: AU-NZ: 10-Year Yield Differential Vs. FV
Source: MNI – Market News / Bloomberg
