Auction Dynamics Promote NZGB Flattening

The broader bid in core global FI markets observed during Asia-Pac hours generally facilitated an extension of the early bid in NZGBs.

• This, coupled with a solid round of demand at the latest NZGB May-32 & Apr-37 auctions, as each line saw 1 successful bidder, who paid up for access to the lines (note the NZGB Apr-25 leg of the auctions was only covered 1.00x and saw an ~11bp wide spread of accepted yields, probably on the back of some RBNZ-related caution, which weighed on the shorter end of the curve), promoted curve flattening, with the major NZGB benchmarks finishing flat to 9bp richer.
• Swap spreads were tighter in the front end to little changed further out, with the 2-/10-Year swap differential pulling further into inverted territory.
• RBNZ dated OIS price just over 70bp of tightening for the RBNZ’s next meeting (which will be held in Feb ’23), with a terminal OCR of just over 5.45% eyed (compared to the 5.50% peak seen in the Bank’s latest OCR track projection).
• Post-meeting parliamentary testimony from RBNZ Governor Orr & chief economist Conway mimicked the post-meeting statement’s focus on inflation, with Orr highlighting that the OCR is now in contractionary territory.
• Looking ahead Q3 retail sales volume data and the monthly ANZ consumer confidence survey headline the domestic docket on Friday.