NZGBS: Closed Slightly Cheaper Ahead Of Tomorrow’s RBNZ Policy Decision

NZGBs closed 2bps cheaper after dealing in relatively narrow ranges in today's local session. In the absence of domestic data, local participants have been content to sit on the sidelines ahead of tomorrow’s RBNZ Policy Decision.

• The RBNZ is probably still “watching, worrying and waiting” thus there is no incentive to change rates in either direction. While we don’t expect a rate hike, we believe the RBNZ will want to keep policy and thus financial conditions restrictive until it is confident that inflation will or has returned sustainably to the 1-3% target band.
• Given we expect the tightening bias to be retained, we also expect that the MPC will discuss a rate hike but then opt for no change. Updated staff forecasts will be presented and will be monitored for changes to the OCR path and CPI forecasts, especially upward revisions.
• There's a 27% probability priced in for a 25bp hike at this week's meeting, with an anticipated terminal OCR of 5.65% (reflecting a 60% probability of a 25bp hike) by the May meeting. By year-end, a cumulative 41bps of easing is factored into the pricing.
• See the full preview here.
• Swap rates closed flat to 4bp lower, with implied swap spreads sharply narrower.