NZGBS: At Bests, Curve Bull Steepens, Infl. Expectations Decline

NZGBs 2/10 cash curve bull steepens, with benchmark yields 10-13bp lower, after RBNZ’s 1- and 2-year inflationary expectations data for Q2 respectively fall to 4.28% and 2.79% versus 5.11% and 3.3% in Q1. The 2- and 10-year yields were respectively 6bp and 4bp lower after the data. A richening in US tsys in Asia-Pac trade assisted the move to session bests by the close, although NZGBs outperformed the $-bloc with the NZ/US and NZ/AU 10-year differentials both 2bp lower on the day.

• Swap rates are 6-14bp lower with the implied swap spread box steeper.
• Inflation expectations have decreased following a drop in actual inflation to 6.7%. Despite the softening of expectations, inflation remains high, and the RBNZ still has work to do since expectations remain above the target midpoint of 2%.
• RBNZ dated OIS shunts softer after the data with pricing 3-11bp softer across meetings by the close. Tightening expectations for the May 24 meeting decline to 20bp.
• NZ net migration data for March showed +12k for a net gain of 65.4k for the year ended March 31. This was the largest gain since August 2020. April Manufacturing PMI increased to 49.1 from 48.1.
• The NZ calendar is relatively light ahead of the Budget on Thursday.