NZGBS: Curve Bull Steepens, RBNZ Terminal OCR Pricing Lower In Wake Of Labour Market Data

NZGBs worked away from richest levels as the session wore on, leaving the major benchmarks running flat to 7bp richer at the close, bull steepening. Swap rates were 2-9bp lower, also steepening on the curve, with swap spreads a touch tighter on the day.

• That came after the domestic Q4 labour market report triggered an early bid, with ASB and BNZ both switching their calls for next month’s RBNZ meeting to a 50bp hike (from 75bp previously), leaving all of the “Big 4” looking for a 50bp step.
• To recap, there was an unexpected 0.1ppt uptick in the unemployment rate as employment growth provided a marginal downside miss, the participation rate held steady, private wages printed largely in line with expectations and average hourly earnings slowed.
• This was the last round of meaningful data before next month’s RBNZ meeting. The downside surprise in the Q4 CPI reading (at least relative to Bank expectations) saw RBNZ dated OIS pricing come in, while today’s data has pushed pricing more towards a 50bp hike as opposed to another 75bp step. There is ~56p of tightening now priced for next month’s meeting, a handful of bp lower on the day. Meanwhile, terminal OCR pricing has also come in a touch, showing just below 5.30%.
• Looking ahead, building permits data and weekly NZGB supply, covering NZGB-28, -33 & -37, headline Thursday’s domestic docket, although adjustment to the impending U.S. Fed monetary policy decision will likely dominate.