NZGBs Bull Steepen Ahead Of RBNZ

NZGBs extended their early richening on the back of the latest North Korean missile launch, which crossed Japanese airspace, but ultimately failed to cause any damage to Japanese assets before landing in the Pacific Ocean, outside of Japan’s EEZ.

• The lack of damage allowed core FI to pull away from richest levels of the session, facilitating a similar move in NZGBs.
• The major NZGB benchmarks finished 7-10bp richer, with some light bull steepening in play.
• The latest NZIER QSBO had no real impact on the space, with a notable number of businesses outlining their intentions to deploy further price hikes in Q4.
• Looking ahead, early Wednesday trade will likely be shaped by the trans-Tasman impetus derived from today’s shock RBA decision (25bp hike vs. the consensus 50bp, which triggered a repricing of RBA terminal rate exp.). However, the impact from the RBNZ decision will dominate as we work through Wednesday’s session.
• A reminder that all of those surveyed by BBG look for a 50bp hike to the OCR tomorrow, with such a move fully priced into the OIS strip. The RBNZ’s guidance will be key, with a terminal rate of ~4.65% now priced after a pullback alongside today’s richening in NZGBs/in lieu of yesterday’s pullback in pricing surrounding BoE tightening expectations (this could be adjusted further post-RBA).