NZGB Curve Twist Steepens On Global Impulses, Swap Spreads Narrow Again

Wider core global FI moves likely allowed the NZGB space to correct from cheapest levels on Friday, with a lack of domestic headline flow evident.

• The bid in the shorter end of the ACGB curve/EFP narrowing provided some trans-Tasman impetus, while light twist steepening in U.S. Tsys and post-holiday catch up weakness in the longer end of the JGB curve were also also observed.
• The major NZGB benchmarks finished 2bp richer to 2bp cheaper on Friday, twist steepening, pivoting around 7s.
• Meanwhile, swap rates were lower across the curve, resulting in swap spread tightening. This extended the recent narrowing of swap spreads witnessed since NZGBs were formally included in the FTSERussell WGBI (after some widening into that event), while the receiver side flows observed in Australian swaps may have also helped (although that dynamic faded a little as Sydney trade wore on).
• RBNZ dated OIS ticked incrementally lower on the day, with ~68bp of tightening now priced for this month’s meeting and a terminal OCR of just below 5.25% observed.
• Next week’s local docket is headlined by the release of the latest batch of quarterly inflation expectations data, monthly card spending data and the RBNZ’s Review and Assessment of the Formulation and Implementation of Monetary Policy.