AUSSIE BONDS: Yields Nudge Lower After US PPI Miss

NZGBs are 4-6bps cheaper after US tsys finished Monday’s session with a modest twist-steepening after a US-Iran interim ceasefire agreement (due to be officially signed Friday) was announced. 

• However, early gains faded as corporate supply weighed. Issuers attempted to take advantage of the Mideast conflict respite - including $25B Nvidia 7-parter.  
• US Data was largely 2nd tier, including softer-than-expected but solid-enough Empire Manufacturing and Industrial Production readings that did nothing to shift the macro narrative going into the Fed meeting Wednesday.
• The US short-end outperformed throughout the session, led by the 3Y segment (-2bp on the day), though Fed rate hike expectations were little changed across the strip, with only about 1 less basis point of hiking seen through end-2026 (around 17bp cumulative).
• “Statistics NZ said petrol falls 3.8% m/m following 34% jump in March and April. Diesel declines 11% after a 95% surge in March and April. Electricity rises 2.4%, gas gains 0.5%. Food prices gain 1% m/m.” - BBG
• Swap rates are
• RBNZ-dated OIS pricing is little changed across meetings. 20ps of tightening is priced for July, while February 2027 assigns 73bps.
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 2.00% May-32 bond and NZ$200mn of the 4.25% May-34 bond.

Oil prices fell over 4% on Monday on news that the US and Iran had reached a memorandum of understanding that would allow for negotiations on a lasting peace to take place over the next 60 days and importantly permit the Strait of Hormuz to reopen toll free over that time. It is due to be signed on Friday. While it is a relief for energy markets, talks will have to cover difficult issues such as sanctions relief, frozen assets, reparations, ongoing free passage through the Strait and Iran’s nuclear ambitions.

• WTI has started Tuesday slightly higher at $81.39 after falling 4.4% to $81.16 yesterday. The slight pickup may be some normalization after Monday’s move but could also be related to reports of explosions in the Hormuz area which the Iranians said could be because of “traffic management”.
• Brent fell 4.8% to $83.17 to be 8.5% lower in June. It reached a trough of $82.40, holding above key support at $81.45. The latest move is an extension of the current corrective cycle but a break below this level would strengthen the short-term bear theme.
• With around 600 vessels waiting to traverse the Strait and oil & gas output curbed, the impact of the conflict on Middle East supply is likely to be felt over at least the rest of 2026 and that is if an agreement is formed after 60 days of talks.
• Canada’s new oil sands project at Blackrod produced its first crude at the end of May and is expected to increase output to 30kbd by late 2027, according to International Petroleum (Bloomberg). With ongoing Middle Eastern uncertainty, there is likely to be increased investment in new supplies outside the region.

Spot USD/CNH tracks near 6.7590 in early Tuesday dealings, slightly up form Monday lows (6.7556). Tight ranges prevailed as Monday's session unfolded, with CNH finishing a touch higher for the session (+0.06%). The USD BBDXY index lost ground for Monday, but spent most of the US session edging up from lows. Equity sentiment was firm amidst the US-Iran peace deal announcement, while oil futures held large losses. Spot USD/CNY finished up at 6.7576, while the CNY CFETS basket tracker lost ground to 101.39, down a further 0.09%. 

• For spot USD/CNH, little has changed from a technical standpoint, with downtrend conditions remaining firmly in play. Near term focus will be on a test under 6.7500, while all key EMAs continue to track lower. The 20-day is around 6.7785, with this resistance point largely capping gains in the pair going back to early Apr.
• USD/CNH risk reversals are no longer trending higher, showing a flatter trend recently, with the 1 month still positive at 0.1225. The 1 month implied vol remains near cycle lows, last close to 2.145%.
• From late yesterday, in terms of May FX settlement data, via BBG: "Banks settled a total of $244b foreign currency and sold a total of $208b, resulting in a surplus of $35.8b", (against a surplus of $40.1bn in Apr).
• Today we have on the data front, May new and used home prices. The recent m/m decline has been negative in recent months, but not to same extent we saw in 2025.
• Also out is May activity figures, with retail sales expected to print -0.2%y/y, per the consensus (prior +0.2%). IP growth is expected at +4.4%y/y, versus prior 4.1%.