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NZGBS: Closed Sharply Cheaper After The RBNZ Pushes Out Rate Cut Expectations

BONDS

NZGBs closed 4-7bps cheaper following the RBNZ’s decision to leave the OCR at 5.50%. The 0.2pp overshoot of the RBNZ’s Q1 CPI forecast seems to have driven a hawkish shift. Rates may now need to stay restrictive for “longer than anticipated”. The RBNZ’s upward revision to its OCR path and the discussion of another hike reflect this. It said “rate cuts continue to be delayed”.

  • The NZ OCR is now not expected to be materially below 5.5% until H2 2025. The decision to leave rates at 5.5% was unanimous.
  • (Dow Jones) The RBNZ signalled that interest rates might need to remain restrictive for longer than expected due to stubborn inflation, delivering a hawkish shock to money markets. (See link)
  • Swap rates closed 5-9bps, with the 2s10s flatter.
  • RBNZ dated OIS pricing closed 5-11bps firmer for meetings beyond July. A cumulative 33bps of easing is priced by year-end versus 43bps before today’s decision.
  • Tomorrow, the local calendar will see Retail Sales Ex Inflation data along with RBNZ Governor Orr's appearance in front of the Parliamentary Finance & Expenditure Select Committee.
  • Tomorrow, the NZ Treasury plans to sell NZ$250mn of the 3% Apr-29 bond, NZ$175mn of the 2% May-32 bond and NZ$75mn of the 1.75% May-41 bond.
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