Closed Weaker, ANZ Lifts Expected Terminal OCR

NZGBs closed 8-9bp weaker, near session cheaps for the second consecutive day, as the market digested the prospect of a worse-than-expected debt profile in tomorrow’s Budget 2023 and another sell-side bank ups its terminal OCR expectation.

• ANZ announced a change to its monetary policy outlook with the RBNZ now expected to raise the OCR to a terminal rate of 5.75%. A 25bp hike to 5.50% is expected next Wednesday but they attach a 20% chance of a 50bp hike. This follows the release of Westpac’s updated call of a 6.0% OCR peak earlier in the week.
• Swap rates 1-8bp higher with the 2s10s curve 7bp flatter and the implied long-end swap spread significantly tighter.
• RBNZ dated OIS RBNZ dated OIS is 2-12bp firmer with meetings beyond August leading. 26bp of tightening is priced for the upcoming May 24 meeting with terminal OCR expectations at 5.69% versus 5.60% at yesterday’s close and 5.51% at the end of last week. A cumulative 43bp of easing is priced off the terminal rate by Feb’24.
• Tomorrow sees the release of Budget 2023. The government has signalled that Budget 2023 will focus on alleviating cost-of-living pressures, fast-tracking recovery from Cyclone Gabrielle, and maintaining public services, but not much else.