FXStreet (Delhi) – Imre Speizer, Senior Markets Strategist at Westpac, suggests that Thursday’s tender of $200m 2020 NZGBs should be supported by NZ swap spreads at multi-year lows. Key Quotes “Valuations & relative value: Valuations are supportive. The 2027 swap spread at 7bp is lower than the adjacent 2019 and 2021. Our Nelson-Siegel curve fitting model estimates it is fair to the fitted curve. The 2020 swap spread is the cheapest it has been for three years. Swap spreads have fallen sharply in most developed markets, and NZ’s spreads have followed suit. However US and AU swap spreads bounced off record or multi-year lows this week and NZ could do similar during the week ahead. Notably, the 2033 swap spread became negative (-4bp) for the first time in its short history, and this may entice investors given the NZ repo market does not suffer from the distortion in the US. If investors deem the 2033 swap spread too cheap, some of that sentiment may rub off on the 2020. Tender performance: Recent tender performance of NZGB nominals has been sub-average. The last few 2020 tenders have resulted in a slight increase in tail size, to a still respectable 1.3bp in October. 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 a 20% of further easing to 2.0% next year. Any Fed tightening in December could hinder the performance of NZGBs, although shorter durations may be less affected. Details: Tender bids close at 2:00pm NZT, with results published from 2:05pm. Settlement is on 1 December.” For more information, read our latest forex news.