NZGBS: Bear Flattening Again

The NZGB curve bear flattened ahead of the weekend, with the major benchmarks benchmarks going out 2.0-7.5bp cheaper.

• The post-30-Year auction pull lower in Tsys applied some early pressure, with payside flow in swaps and RBNZ-dated OIS then weighing on the front end of the curve, even as long dated paper corrected from cheaps alongside wider core global FI markets, with some focus on softer than expected PPI data out of China and the tweaks made to the RBA’s inflation forecast profile.
• Swap rates were little changed to 8bp higher, with that curve also flattening, leaving swap spreads little changed to a touch tighter. The 2-/10-Year swap spread has generally consolidated in February, after the pull away from cycle extremes (deepest inversion since the GFC) in late ’22.
• RBNZ-dated OIS firmed again today, leaving just over 60bp of tightening priced for this month’s meeting, alongside pricing of a terminal OCR of ~5.40%.
• Local headline flow was dominated by focus on a cyclone that is making its way towards the country (after the recent floods in Auckland, which will impact inflation in the coming months)
• Looking ahead, inflation expectations and REINZ house price data headline next week’s local docket.