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NZGBS: Closed Richer Ahead Of Q2 CPI Tomorrow

BONDS

NZGBs closed on a positive note with benchmark yields flat to 2bp lower ahead of Q2 CPI tomorrow. Without meaningful domestic drivers, local participants have been content to monitor developments in US tsys and ACGBs. NZ/US and NZ/US 10-year yield differentials closed little changed.

  • Tomorrow sees the release of Q2 CPI with economists expecting the quarterly pace to step down to +0.9% q/q from +1.2% in Q1. This will leave the annual rate at +5.9% down from +6.7%. If analysts are correct, then inflation would be below RBNZ’s Q2 forecast of +1.1% q/q and +6.1% y/y. The RBNZ appears to be on hold for now, unless inflation isn’t in the target band by H2 2024, with the risk to rates likely to stem from sticky non-tradeable inflation (+1.0% q/q versus +1.7% prior).
  • Swap rates are flat to 3bp lower with the 2s10s curve flatter.
  • RBNZ dated OIS closed little changed with terminal OCR expectations sitting at 5.64%.
  • The latest 1News/Verian poll showed support for the incumbent Labour Party down 2pp to 33% but the opposition Nationals also down 2pp to 35%. The NZ election is scheduled for October 14.
  • Later today sees June US retail sales and industrial production, May US business inventories, and the July NAHB housing market index.
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