NZGBs Bucking The Trend, Firmer At The Margin

NZGBs have firmed a touch in early dealing, despite the weakness seen in U.S. Tsys on Thursday and related weakness in Aussie bond futures, running 0.5-2.5bp richer across the curve, with some light bull steepening in play.

• This adds to the late rebound witnessed on Thursday, which was related to firm demand for the longer dated NZGBs on offer in Thursday’s weekly auction and a pullback from cycle peaks in NZ swap markets.
• BNZ have noted that “there is just one bond tender remaining before NZGBs join the WGBI index on 1 November. We’re expecting something in the region of $2bn of offshore investor inflows into the local government bond market in the first month of index inclusion.”
• Note that payside swap flow has returned early today, in lieu of the weakness in U.S. Tsys & ACGBs overnight, and after yesterday’s (potentially disfunctional) market swings. The major swap rates are 6-7bp higher on the day, with swap spreads widening across the curve given the light bid in NZGBs.
• Terminal OCR pricing in RBNZ dated OIS is little changed on the day, hovering just above 5.40%.
• NZ’s Sep trade balance data has been and gone, with a fourth consecutive monthly trade deficit registered, albeit narrowing a touch from the record deficit witnessed in August.