NZD: NZGB 2027 tender preview – Westpac

By FXStreet FXStreet (Delhi) – Imre Speizer, Research Analyst at Westpac, suggests that Thursday’s tender of $200m 2027 NZGBs will be subject to mixed influences – declining swap spreads, but a supportive RBNZ.

Key Quotes

“Valuations & relative value

Valuations are mixed. The 2027 swap spread at 12bp is much lower than the adjacent 2023’s at 16bp and looks too cheap on that curve. However, our Nelson-Siegel curve fitting model estimates the 2020 is around 1bp rich to the fitted curve.

Swap spreads have fallen sharply in most developed markets, and NZ’s spreads have followed suit. Given this global phenomenon defies conventional economic rationale, NZGB investors may be loathe to fade the trend at this juncture, as attractive as NZ swap spreads may be.

The 2023-2027 curve at 34bp is steep but could extend to revisit the July record high of 39bp.

Tender performance

Recent tender performance of NZGB nominals has been good. The last tender, in September, resulted in only a 1bp tail. Since then there has been a tender of 2020 nominals (22 October), which also resulted in a 1bp tail.

Demand

Local financial conditions remain bond-supportive: the RBNZ is expected by economists and market pricing to cut the OCR to 2.5% in December. Moreover, markets are now assigning …read more

Source:: FX Street