NZGBS: Closed On A Strong Note, Q2 Real Retail Sales Misses

NZGBs closed at the richest level of the local session, with benchmark yields 7-8bp lower. The richening through the session received a boost from weaker-than-expected Q2 retail sales volumes.

• Q2 retail sales ex-inflation declined 1% q/q but since the series has contracted 5 of the last 6 quarters the annual rate improved to -3.4% from -4.3%. Q1 was revised down 0.2pp to -1.6%. Nominal sales fell 0.2% q/q to be up 2.7% y/y. This data shows that spending remained subdued in Q2 which the RBNZ said is needed to “reduce inflation pressure”. It should be reassured at this point that with rates at 5.5%, it can achieve this.
• US tsys are holding onto early gains in the Asia-Pac session. Little meaningful macro news flow has crossed. US tsys sit flat to 2bp richer across the major benchmarks.
• Swap rates are 9-12bp lower, with the 2s10s curve steeper and implied swap spreads sharply tighter.
• RBNZ dated OIS pricing closed 2-8bp softer across meetings beyond October, with terminal OCR expectations at 5.67%.
• The local calendar is empty for the rest of the week.
• Tomorrow the NZ Treasury plans to sell NZ$250mn of the 4.5% Apr-27 bond, NZ$150mn of the 2.0% May-32 bond and NZ$100mn of the 2.75% May-51 bond.