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NZGBS: Cheaper After The RBNZ Decision To Leave The OCR At 5.50%

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NZGBs are around 4-7bps cheaper after the RBNZ left the OCR at 5.50%, as widely expected. In terms of key points:

  • Annual CPI exceeds the 1-3% target, with persistent domestic services inflation.
  • The Committee agrees on maintaining restrictive monetary policy to return inflation to target.
  • Weaker capacity pressures and an easing labour market are reducing inflation, but sectors less sensitive to interest rates, like higher rents and insurance costs, temper this decline.
  • Slow domestic inflation decline risks impacting inflation expectations.
  • Economic projections include current government fiscal intentions, with reduced spending contributing to weaker aggregate demand. The impact of potential Budget changes remains to be assessed.
  • The RBNZ now anticipates cutting the OCR starting later in 2025, with wages and spending easing to levels consistent with targets.
  • The RBNZ projects annual inflation to be 3% in Q3 2024.
  • Swap rates are 5-6bps higher than pre-decision levels and 3-6bps higher on the day. The 2s10s curve is flatter.
  • RBNZ dated OIS pricing is slightly firmer across meetings. The market had a 7% probability priced in for a 25bp hike today.
  • The pricing level of 5.52% for the May meeting also represented the anticipated terminal OCR. By year-end, a cumulative 43bps of easing is factored into the pricing.
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NZGBs are around 4-7bps cheaper after the RBNZ left the OCR at 5.50%, as widely expected. In terms of key points:

  • Annual CPI exceeds the 1-3% target, with persistent domestic services inflation.
  • The Committee agrees on maintaining restrictive monetary policy to return inflation to target.
  • Weaker capacity pressures and an easing labour market are reducing inflation, but sectors less sensitive to interest rates, like higher rents and insurance costs, temper this decline.
  • Slow domestic inflation decline risks impacting inflation expectations.
  • Economic projections include current government fiscal intentions, with reduced spending contributing to weaker aggregate demand. The impact of potential Budget changes remains to be assessed.
  • The RBNZ now anticipates cutting the OCR starting later in 2025, with wages and spending easing to levels consistent with targets.
  • The RBNZ projects annual inflation to be 3% in Q3 2024.
  • Swap rates are 5-6bps higher than pre-decision levels and 3-6bps higher on the day. The 2s10s curve is flatter.
  • RBNZ dated OIS pricing is slightly firmer across meetings. The market had a 7% probability priced in for a 25bp hike today.
  • The pricing level of 5.52% for the May meeting also represented the anticipated terminal OCR. By year-end, a cumulative 43bps of easing is factored into the pricing.