NZGBS: Cheapen Further After Q4 CPI Details Keep Market Cautious

NZGBs closed 5bps cheaper across benchmarks, with the 10-year underperforming its US counterparts. At the local close, the NZ-US 10-year yield differential closed 3bps wider at +55bps.

• The underperformance came despite Q4 CPI data printing in line with consensus and below the RBNZ’s forecast. It was the details that had the market thinking the RBNZ would likely remain cautious given persistent domestically driven inflation. While the pace of increase in the domestically determined non-tradeables CPI eased to 1.1% q/q from 1.7% in Q3 and 1.5% in Q4 2022 (data is non-seasonally adjusted), annualised it is still at 4.3%. The annual rate moderated to 5.9% from 6.3%, which remains too high for the RBNZ to feel that the inflation fight has been won.
• On a more positive note, the RBNZ’s sector factor model later in the day showed core CPI inflation easing to 4.5% y/y in Q4 from 5.2% in Q3 and the peak of 5.7% in the previous three quarters. It was the lowest rate since Q4 2021.
• Swap rates closed 5-7bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed 3-6bps firmer across meetings beyond February.
• Tomorrow, the local calendar sees the Government’s 5-month Financial Statements.
• Tomorrow, the NZ Treasury plans to sell NZ$250mn of the Apr-27 bond, NZ$175mn of the May-34 bond and NZ$75mn of the Apr-37 bond.