NZGBS: Closed Slightly Richer After The Release Of The PEFU

NZGBs are 1-2bp richer after the Treasury released its pre-election budget economic and fiscal update, which gives a starting point for the government that will follow the October 14 elections. Polls currently suggest that there will be a change of government.

• The updated projections show a better growth outlook over the forecast horizon with lower unemployment, but the current account deficit has been revised higher. While inflation has been revised down for FY23 it is now expected to be higher in FY24.
• The fiscal outlook has deteriorated with the surplus pushed out one year to FY27.
• New Zealand Debt Management revised the government bond program for 2023/24 to NZ$36 billion, NZ$2 billion higher than published in the Budget Economic and Fiscal Update 2023. The forecast NZGB programs for 2024/25 and 2026/27 have also been increased, by NZ$3 billion and NZ$4 billion respectively. The forecast for the 2025/26 year is unchanged.
• Swap rates are 2-3bp lower.
• RBNZ dated OIS pricing is little changed on the day, with terminal OCR expectations steady at 5.62%.
• Tomorrow the local calendar sees REINZ House Prices and Food Prices, along with a speech from RBNZ Assistant Governor Silk on liquidity.