Bailey-Related Pressure & LGFA Bond Pricing Weigh On NZGBs

NZGBs cheapened on Wednesday, with the major benchmark yields running 5-6bp higher on the day, in lieu of Tuesday’s bear steepening of the U.S. Tsy curve which was aided by comments from BoE Governor Bailey, who pointed to the already outlined end to the BoE’s temporary Gilt purchases as a hard deadline (a subsequent FT story has drawn questions over that idea, but that came after the NZGB market closed).

• 2-Year swap rates hit a fresh cycle high before edging away from best levels.
• Pricing of the latest round of bond issuance from LGFA (’25 & ’29 paper) likely applied some background pressure to NZGBs.
• Note that the RBNZ showed little want to adjust its 1-3% inflation target band during the initial stages of the latest review of its monetary policy remit, although it will consult on the matter ahead of the final publication.
• RBNZ dated OIS indicate a terminal rate of just over 4.90%, little changed on the day.
• Local data was headlined by the latest REINZ house price readings, which revealed the continued impact of higher interest rates on the housing market (lower prices and reduced sales).
• Looking ahead, Thursday’s domestic docket will be headlined by the latest round of NZGB supply (which includes NZGB Apr-25, May-32 & May-41), with the latest food price index readings also due.