Early NZGB Bid Eases As Payside Flows Emerge In Swaps

Much like the wider core global FI space, NZGBs saw a move away from Monday’s richest levels after the space initially rallied on the back of weekend headlines covering comments from Chinese health officials pointing to unwavering support for the country’s dynamic zero COVID system.

• Some weakness in ACGBs helped (with impending supply factoring into price action across the Tasman), the knock-on inflationary impact of an elongated ZCS situation in China and source reports flagging back-channel U.S.-Russia talks aimed at preventing a further escalation of the war in Ukraine were seemingly at the fore when it came to the adjustment away from richest levels.
• Elsewhere, global equities moved away from worst levels, with Hong Kong equities leading the charge, lodging firm gains during the morning session, adding a further layer of pressure.
• As a result, payside flows came to the fore in swaps, while the major cash NZGBs richened by ~1bp on the day, resulting in swap spread widening after the post-NZGB inclusion in the FTSE Russell WGBI streak of narrowing.
• The payside flows in swaps came alongside an uptick in RBNZ dated OIS, which now prices a terminal rate of just under 5.30%, with a little over 65bp of tightening priced for this month’s meeting.
• Looking ahead, inflation expectations data headlines the domestic docket on Tuesday.