Australian/NZ Rates Strategy: Trade we like: flatten NZ‘s 3s10s curve, outright or vs AUD; NZGBs richen but still too cheap

Research evidence excerpt

Australian/NZ Rates Strategy: Trade we like: flatten NZ‘s 3s10s curve, outright or vs AUD; NZGBs richen but still too cheap

Global Research

14 July 2026ab

Australian/NZ Rates Strategy Interest Rates

AustralasiaTrade we like: flatten NZ's 3s10s curve, outright

or vs AUD; NZGBs richen but still too cheap Nic Guesnon, CFA

Strategist

nic.guesnon@ubs.com

+61-2-9324 2192

Kieran Kelly

UBS opened a trade on 13 July to flatten NZ's 3s10s curve by paying 3 year Associate Analyst

swap against owning NZGB 15-May-36 Bonds, entry: 93bps; targeting kieran.kelly@ubs.com

+55bps. Since then the curve has flattened to 83bps, but we see more to go. +61-2-9324 2107

DV01 matched net carry and roll (excluding leverage/repo costs) is -7.5bps per

quarter, but should prove more tolerable if the curve flattens as more hikes

are priced into the front end.

The RBNZ is taking a hawkish approach towards inflation; and the recent

surge in inflation leading indicators could leave them even more nervous.

While we previously liked being long NZ's front end, we no longer believe

investors should fight this trend – move to flatteners now.

UBS sees election risk premium priced into NZGBs, which are still 5-10bps too

cheap against swap across the curve. If the incumbent Coalition Party retains

power at November's election and continues fiscal consolidation, then bonds

should further outperform swap.

The NZDMO's recent new May 2038 bond syndication saw a record order

book of $26.7bn, priced at the tights of guidance; and printed an equal

record high of $7bn (i.e. bid to cover 3.8x vs average of 2½x for nominals).

Longer-dated demand is even stronger than we realised and the NZGB curve

still looks too steep given the fundamentals of a hawkish RBNZ &

consolidating fiscal policy backed by an AAA credit rating.