NZGBs Cheaper On Global Impetus, Inflation Expectations Eyed

NZGBs cheapen in early Tuesday trade, with a fairly parallel ~8bp uptick in benchmark yields across the curve as participants react to Monday’s moves in wider core global FI markets.

• Swaps rates have tracked the move in NZGB yields, leaving swap spreads unchanged on the day, after yesterday’s payside driven widening in swaps putting a stop to the narrowing witnessed since the formal inclusion of NZGBs in the FTSE Russell WGBI index.
• Terminal OCR pricing in RBNZ dated OIS has pushed higher, adding just under 10bp to print just shy of 5.35%.
• Domestic news flow has seen the reappointment of RBNZ Governor Orr for a second 5-year term, which will start in March ’23. Finance Minister Robertson noted that “in light of global conditions, this is also a time when stability and continuity are paramount for the Bank.” The reappointment came on the back of a “unanimous recommendation,” although the opposition National Party presented a clear source of dissent from the other side of the political spectrum, stressing that it was appalled by the fact that the decision was made before the review of the RBNZ was completed.
• Looking forwards, Q4 inflation expectations data headlines the domestic docket on Tuesday. 2-Year inflation expectations moderated from their cycle peak in Q3, to print at 3.07%. We highlight the very tight NZ labour market, which is providing a clear source of domestic inflation, with markets pricing in a near 80% chance of a 75bp hike at the RBNZ’s upcoming meeting, after 5 consecutive 50bp moves.