NZGBs Bear Flatten On Global FI Dynamics, Impending WGBI Inclusion Eyed

The bearish flattening impulse from Friday’s global FI trade has spilled over into Monday’s NZ session, with NZGBs cheapening by 3.5-6.5bp early on. Swaps rates have seen a more parallel ~4bp move higher, resulting in mixed spread performance.

• The move in NZGBS was a little more contained than that seen in the major core global FI markets on Friday, with BNZ reminding us that “New Zealand government bonds officially join the FTSERussell World Government Bond Index (WGBI), the major global government benchmark used by international investors, tomorrow. The index is rebalanced, to include NZGBs, at the market close tonight, so we should see a flurry of bond buying from offshore investors which use this benchmark over the next few days. We have previously estimated there could be $2bn of offshore inflows into the NZGB market in November.”
• RBNZ dated OIS is little changed this morning, pricing a terminal OCR of ~5.10%, comfortably shy of the ~5.50% peak seen 10 or so days ago.
• Domestic headline flow has seen the RBNZ note that the annual stress tests that it conducts on the banking industry revealed a resilience to a stagflationary scenario.
• The local docket is empty today, with Wednesday’s labour market report providing the highlight of this week’s NZ docket. Chinese PMI data presents a wider point of interest today.