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NZGBS: Bull Steepens After Well-Received Supply

BONDS

NZGBs closed 7-15 richer at session bests after weekly supply received a strong bid (cover 3.08-6.25x), with NZGB May-26 demand the strongest.

  • Following the RBNZ’s 50bp hike yesterday, it seems that market participants are now taking the central bank's commitment to bring inflation back to its target range more seriously. However, this move has also raised concerns about over-tightening and a recession. The NZGB cash 2/10 curve steepened 5bp post-supply to be +8bp on the day. NZ/US and NZ/AU 10-year yield differentials were respectively 2bp and 4bp tighter on the day.
  • 2s10s swap curve also bull steepened with rates 5-13bp lower, implying wider swap spreads.
  • After shunting 20bp higher across meetings yesterday, RBNZ dated OIS pricing today closed 2-9bp softer across meetings with Feb-24 leading. 19bp of tightening was priced for the May meeting. 45bp of easing is priced for Feb-24 off a terminal OCR expectation of 5.45% (July).
  • ANZ Commodity Price Index rose 1.3% M/M in March with the Meat, Skins and Wool category the star performer (+5.9%).
  • With the global calendar light ahead of US Non-Farm Payrolls on Friday, the direction in the local market will likely remain a tussle between lower global rates and a hawkish RBNZ.
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