NZGBS: Cheaper Ahead Of The Budget

NZGBs opened 2bp cheaper with US tsy yields finishing higher as risk sentiment improved on hopes of a debt ceiling breakthrough.

• Today sees the release of Budget 2023 (0300 BST). The government has signalled that Budget 2023 will focus on alleviating cost-of-living pressures, fast-tracking recovery from Cyclone Gabrielle, and maintaining public services, but not much else.
• The Government's two fiscal rules are expected to be easily met, as the books are projected to reach an underlying fiscal surplus in the out years, and net public debt is expected to peak at a level significantly below 30% of GDP.
• Nonetheless, bond issuance is expected to be under upward pressure mainly due to the weak trajectory of the underlying operating balance, rather than the costs associated with the early 2023 storms. The gross bond tender is expected to be around $10bn higher out to 2026/27.
• Swap rates opened 5bp higher with implied swap spread wider.
• The RBNZ will be carefully watching the size of the fiscal impulse as it plots whether to deliver a 25bp or 50bp hike next week. RBNZ dated OIS opened 1-4bp firmer with 28bp of tightening priced for next week’s meeting.
• Q1 PPI data is also scheduled for release.