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NZGBS: At Cheaps, Higher ACGB and US Tsy Yields

BONDS

NZGBs closed 1-4bp cheaper at session cheaps in sympathy with the post-employment data weakening in ACGBs. US Tsys are also 1-2bp cheaper in Asia-Pac trade. Like ACGBs, NZGBs have underperformed US Tsys with the 10-year yield differential +6bp at +64bp. The weekly NZGB auction held today displayed robust demand (cover ratio 3.0-4.0x range). However, with the shortest offering approximating a 5-year bond versus a 3-year bond last week, today’s auction failed to receive bids linked to RBNZ over-tightening risks and recessionary concerns.

  • Swap rates are 3-4bp higher with the implied swap spread box flatter.
  • RBNZ dated OIS closed little changed with 20bp of tightening priced for the May meeting and 42bp of easing priced for Feb-24 off a terminal OCR expectation of 5.48% (July).
  • The local calendar is scheduled to release Manufacturing PMI (Mar) and Net Migration (Feb) tomorrow. The PMI has moved well off its recent low (47.4), but headwinds are mounting after the RBNZ’s aggressive tightening cycle. Net migration has recently returned to strong inflows with the border now open.
  • Further afield, US PPI and Initial Jobless Claims will be the focus today ahead of US Retail Sales and Industrial Production for March on Friday.
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