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NZGBS: Closed Sharply Cheaper After Stronger-Than-Expected Labour Market Data

BONDS

NZGBs closed 9-14bps cheaper on the day across benchmarks and 8-12bps cheaper than pre-jobs data levels.

  • The NZ labour market continued to ease but not by as much as consensus expected for Q2. The unemployment rate rose 0.3pp to 4.6%, its highest since Q1 2021 but in line with the RBNZ’s May expectation.
  • Employment growth and the participation rate were stronger than expected as were private sector wages. Public sector agreements boosted overall earnings.
  • With the labour market developing broadly as the RBNZ expects and some domestic inflation still strong, it will likely want to see Q3 CPI on October 16 before cutting rates.
  • Swap rates closed 9-13bps higher on the day, with the 2s10s curve flatter.
  • RBNZ-dated OIS pricing closed 10-17bps firmer across meetings. The market now prices a 43% chance of a rate cut in August, down from 78% before the data release. Additionally, a cumulative 82bps of easing is anticipated by year-end, compared to 97bps previously.
  • Tomorrow, the local calendar will see RBNZ Inflation Expectations data alongside the NZ Treasury's planned sale of NZ$275mn of the 1.5% May-31 bond, NZ$175mn of the 4.5% May-35 bond and NZ$50mn of the 1.75% May-41 bond.
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