BONDS: NZGBS: Cheaper After RBNZ Decision

NZGBs closed 3-5bps cheaper after today’s RBNZ policy decision and release of updated forecasts. 

• The RBNZ cut rates 50bp to 4.25% as was widely expected as it felt “more confident to continue removing” policy restrictiveness given inflation is close to the target mid-point and underlying measures are “converging” on it. It published a revised set of forecasts, which if the economy develops close to its expectations it should be able to cut rates further.
• The MPC only discussed a 50bp rate cut this month. The OCR path implies another 50bp in February, which Governor Orr confirmed in his press conference as policy is still restrictive.
• Swap rates closed 4-10bps higher, with the 2s10s curve flatter.
• The market had anticipated 55bps of easing at this policy meeting.
• OIS pricing closed 4–9bps firmer across the meetings. For the February meeting, 41bps of additional easing is priced, compared to 95bps cumulatively (including today’s cut) before the decision.
• The local calendar will see Filled Jobs and ANZ Business Confidence tomorrow. RBNZ Assistant Governor will also be before the Select Committee on MPS.
• Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 3.0% Apr-29 bond, NZ$175mn of the 3.5% Apr-33 bond and NZ$75mn of the 1.75% May-41 bond.