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NZGBS: A Touch Firmer On Global Leads, Will The RBNZ Step Up The Pace Of Hikes?

BONDS

NZGBs richen in sympathy with the move observed in U.S. Tsys on Tuesday, leaving the major benchmarks 5-6bp firmer in early Wednesday trade.

  • Swap spreads are a touch wider in the front end to flat further out the term structure.
  • Today’s RBNZ decision provides the key domestic risk event of the week. A majority of sell side of economists look for a 75bp OCR hike, with the RBNZ dated OIS strip pricing just under 70bp of tightening, little changed vs. levels seen late Tuesday. Meanwhile, terminal OCR pricing continues to hover just above 5.15% (vs. the ~4.10% seen in the most recent RBNZ OCR track, the OCR could go above the previously projected peak today).
  • We are cautiously siding with the 75bp camp, albeit there is a risk that the Committee will tip hat to the higher starting point and stick with raising the OCR in 50bp increments. The dovish reception of a half-percentage point increase could be partly offset by ostensibly hawkish revisions to forecasts and the OCR track, but only to an extent. In any case, given the recent surprises on the inflation front, the Reserve Bank will likely chart a new interest-rate forecast with a higher terminal rate. See our full preview of the event here.
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NZGBs richen in sympathy with the move observed in U.S. Tsys on Tuesday, leaving the major benchmarks 5-6bp firmer in early Wednesday trade.

  • Swap spreads are a touch wider in the front end to flat further out the term structure.
  • Today’s RBNZ decision provides the key domestic risk event of the week. A majority of sell side of economists look for a 75bp OCR hike, with the RBNZ dated OIS strip pricing just under 70bp of tightening, little changed vs. levels seen late Tuesday. Meanwhile, terminal OCR pricing continues to hover just above 5.15% (vs. the ~4.10% seen in the most recent RBNZ OCR track, the OCR could go above the previously projected peak today).
  • We are cautiously siding with the 75bp camp, albeit there is a risk that the Committee will tip hat to the higher starting point and stick with raising the OCR in 50bp increments. The dovish reception of a half-percentage point increase could be partly offset by ostensibly hawkish revisions to forecasts and the OCR track, but only to an extent. In any case, given the recent surprises on the inflation front, the Reserve Bank will likely chart a new interest-rate forecast with a higher terminal rate. See our full preview of the event here.