NZGBS: CPI Triggers RBNZ Repricing, Front-End Weakness & Payside Swap Flow

NGBS ultimately twist flattened on Tuesday, recovering from their post NZ-CPI lows, with the firmer than expected headline and non-tradable readings triggering a repricing of RBNZ tightening expectations.

• RBNZ dated OIS now price a terminal OCR of ~5.25%, just over 20bp higher on the day and in line with the most aggressive of the new calls from the “Big 4” domestic banks (held by ASB), albeit shy of the intraday peak of just over 5.35%.
• Cash NZGBs were 7.5bp cheaper to 0.5bp richer at the close, pivoting around 10s.
• Payside flow dominated in swaps post-CPI, with swap spreads wider across the curve. 2-Year swap rates printed a fresh cycle high of 5.20% before moderating, closing at 5.14%, just over 14bp higher on the day.
• Elsewhere, we saw the RBNZ sectoral factor inflation model accelerate to +5.4% Y/Y in Q3 (against an upwardly revised +5.2% in Q2).
• A light bid in the U.S. Tsy space and lack of overtly hawkish rhetoric from RBA Deputy Governor Bullock across the Tasman, along with the relatively late cycle nature of the NZ economy, probably allowed the space to stabilise a little.
• Non-resident bond holdings of NZ bonds slipped to 57.7% in Sep vs. 58.4% in Aug.
• Tomorrow’s local docket is empty.