NZGBS: Closed At Session Bests After Softer Labour Market Data

NZGBs closed on a strong note, with yields 5-7bps lower, after labour market data printed either below or close to expectations. Q3 employment contracted 0.2% q/q after rising 1%, the first drop since Q2'22. However, wages look stubborn, with Q3 labour costs rising 1.1% q/q and 4.3% y/y. Private wages saw growth slowing but the public sector boosted overall wage costs. Accordingly, it looks difficult for the RBNZ to meet its early 2024 forecast of 3.8% y/y. Revised projections are due at the November 29 meeting.

• Swap rates closed 8-10bps lower, with the 2s10s curve steeper. Implied swap spreads closed 3-4bps tighter.
• RBNZ dated OIS pricing closed 1-7bps softer across meetings, with late’24 leading. Terminal OCR expectations drop to 5.58% (+8bp by Feb’24).
• RBNZ released its Financial Stability Report stating that “the vast majority of [household] borrowers have been able to manage these [interest rate] increases”. Businesses continue to service debt, although the dairy and commercial property sectors are facing challenges.
• RBNZ Deputy Governor Christian Hawkesby said no decisions have been made on implementing debt-to-income restrictions.
• The local data docket is empty tomorrow.
• Tomorrow, the NZ Treasury plans to sell NZ$225mn of the May-30 bond, NZ$175mn of the May-34 bond and NZ$100mn of the May-51 bond.