Global Forces & Firmer Inflation Exp. Weigh On NZGBs, RBNZ Pricing Shifts Higher

NZGBs finished 12-13bp cheaper on Tuesday, with Monday’s weakness in core global FI markets, a move higher in domestic inflation expectations and spill over from the presence of notable ACGB supply across the Tasman at the centre of today’s sell off.

• Swap rates mostly tracked the move in NZGBs leaving swap spreads little changed to a touch narrower on the day.
• 2-Year inflation expectations lodged a fresh cycle peak of 3.62%, as the labour market continuing to provide a key source of domestic inflation.
• This print allowed RBNZ dated OIS to move higher, adding to the earlier uptick, with 73bp of tightening priced for this month’s meeting. Pricing for the terminal OCR has moved up to 5.45%, ~20bp above levels seen late on Monday.
• We also saw the reappointment of RBNZ Governor Orr for a second 5-year term, which will start in March ’23. The opposition National Party presented a clear source of dissent, stressing that it was appalled by the fact that the decision was made before the review of the RBNZ was completed.
• Wednesday’s domestic docket will see the release of card spending data, the publication of the RBNZ’s review of monetary policy implementation and an address from RBNZ Assistant Governor Silk (although this comes at the Payments NZ "The Point" conference, with the subject topic limiting the scope for meaningful comments re: monetary policy).