NZGBS: Closed Richer, Narrow Ranges, Q3 CPI Tomorrow

NZGBs closed 1-4bps richer after dealing in narrow ranges during the local session. The previously outlined Performance Services Index failed to be a market mover.

• The market also seemed to take in its stride the change of government following the weekend’s election. NZ Prime Minister-elect Christopher Luxon is in the position to negotiate with the ACT Party and the NZ First Party to form a stable government after his National Party secured the most seats in the election.
• The swaps curve closed with a twist-flattening.
• Tomorrow, the local calendar sees Q3 CPI. Bloomberg consensus expects +1.9% q/q and +5.9% y/y versus +1.1% and +6.0% in Q2. Q3 is expected to be boosted by higher accommodation and insurance prices plus increased government charges including public transport. The RBNZ is likely to look through the data if it’s in line with expectations as it forecasted a strong Q3 outcome of 2.1% q/q and 6% y/y in August, higher than the Bloomberg consensus. Also, at its October meeting, it said it was focused on the medium term.
• Nonetheless, easing inflation may spur investors to dial back their expectations for another rate hike. RBNZ dated OIS pricing is 1-2bps firmer today, with terminal OCR expectations at 5.72% (+22bps).