NZGBS: Closed On A Strong Note Ahead Of Tomorrow’s RBNZ Policy Decision

NZGBs closed richer, at or near the session’s best levels, with yields 6-8bps lower. With the domestic calendar empty today ahead of the RBNZ policy decision tomorrow, local participants appear to have been guided by US tsys’s strong resumption to trading yesterday after the Thanksgiving long weekend. That said, those gains have been slightly pared in today’s Asia-Pac session, with cash US tsys flat to 2bps cheaper.

• Swap rates are 11-12bps lower, with the 2s10s curve slightly flatter.
• RBNZ dated OIS pricing is flat to 8bps softer across meetings, with Oct’24 leading. Notably, the market assigns a 15% probability to a 25bp hike at tomorrow's policy meeting.
• We expect the RBNZ to leave rates at 5.5%, where they have been since May. Bloomberg consensus is unanimous at 5.5%. As a result, the focus will be on the accompanying updated forecasts, statement and press conference. (See MNI’s preview here)
• Terminal OCR expectations remain steady at 5.54%. It is noteworthy that the recent peak in the expected terminal rate, recorded at 5.72%, occurred in the lead-up to the Q3 CPI release in mid-October. Subsequently, expectations have undergone a gradual softening, amounting to nearly 20bps. Looking ahead, the market fully prices in a 25bp rate cut by August 2024.