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NZD: Inflation-linked tender preview for NZ – Westpac

FXStreet (Delhi) – Imre Speizer, Research Analyst at Westpac, expects that tomorrow’s tender of $100m inflation-indexed 2035 NZGBs to be supported by potentially basing BEI, plus higher RY relative to global peers as real Yields NZGB 2035 RY continues to broadly follow nominal yield direction.

Key Quotes

“During the past few weeks, linkers have outperformed nominals, RY tracking roughly sideways while nominal yields have risen. Since mid-September, the 2035 RY has been stuck between 2.30% and 2.35%, and is thus a neutral proposition from an outright, short term perspective.”

“The RY curve has changed little during the past month, remaining slightly positively sloped beyond the 2016. The 2035 thus benefits from rolldown.”

“Break Even Inflation (BEI) 2035 BEI has rebounded since 1 October. The improvement in global risk appetite is a major factor at play, and has boosted BEIs in most global markets. Those looking for a base in NZ BEIs may be encouraged by such price action.”

“NZ CPI inflation for the September quarter will be released next Friday. Our economists are currently reviewing the forecast which currently stands at 0.2% qoq. We are expecting the result to be dragged down by government charges which are one-offs and thus shouldn’t detract from the view that the lower NZD will eventually push tradeable inflation higher.”

“International Relative Value NZ real yields remain well above those of comparable global peers. During the past month, the RY advantage over both AU and the US has increased. Global relative value investors are likely to be attracted by this cheapening.”

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