NZGBS: Cheaper, But Off Worst Levels, Q4 CPI Next Wednesday

NZGBs closed 3-6bps cheaper but off session cheaps. The morning’s release of December’s Manufacturing PMI data failed to provide a market-moving catalyst. Accordingly, local participants appear to have been happy to take their lead from US tsys’ heavy close on Thursday and ongoing weakness in today’s Asia-Pac session. Cash US tsys are dealing 1-2bps cheaper, with a slightly steepening bias.

• Swap rates closed 1-7bps higher, with the 2s10s curve steeper.
• RBNZ dated OIS pricing closed flat to 3bps firmer across meetings, with July-November leading. A cumulative 88bps of easing is priced by year-end. This compares to -102bps seen earlier in the week and -121bps on January 2.
• Next week's highlight is likely to be Q4 CPI data on Wednesday. Bloomberg Economics (BE) expects the CPI data to show an easing in inflation and undershoot of the RBNZ’s forecast. The central bank projects the CPI will climb 0.8% q/q, slowing from a 1.8% rise in 3Q23. That translates into 5% annual inflation. BE thinks the CPI will surprise on the downside, with a 0.3% q/q rise that brings annual inflation to 4.5%.
• Elsewhere, the BoJ Policy Decision is due on Tuesday, although there is minimal expectation within the market that the BoJ will alter its current yield-curve control and negative short-term rate policy.