NZGBS: Cheaper Start On Macro Factors, While Local Data Softens

NZGBs are a touch steeper this morning, with the major benchmarks operating 2.5-3.5bp cheaper.

• We would suggest that the steepening of the curve is perhaps a product of Friday’s twist steepening in the U.S. Tsy space and in part reaction to weekend source reports in the Japanese press which have pointed to the potential for the Japanese government to revise the BoJ's price target that commits it to achieving 2% inflation at the earliest possible date. The new mandate would be more flexible around the 2% goal, which could potentially be a medium- or longer-term target.
• Meanwhile, the swap curve sees the major rates running little changed to a touch higher.
• The major RBNZ dated OIS pricing in the front end of the strip is little changed, with just over 70bp of tightening priced for the Feb ’23 meeting, alongside a terminal OCR of ~5.55%.
• Local data flow has seen a lower rate of expansion in the services PMI reading alongside a record low Q4 consumer confidence reading from Westpac. For the latter, the survey collator noted that “mounting financial pressures are the major concern that is worrying households. Living costs have been skyrocketing. We’ve also seen sharp increases in borrowing costs. The weakness in consumer confidence is weighing on household spending appetites, reinforcing our expectations for a slowdown in overall economic growth.”
• We now look to the broader DM reaction to the aforementioned BoJ story to guide wider FI price action in Asia-Pac hours, outside of any meaningful, fresh headline flow.