NZGBS: Curve Bull Steepens, Solid Auction Demand

NZGBs closed with the 2/10 cash curve 5bp steeper with 2-year and 10-year benchmarks respectively 7bp and 1bp richer. The 2-year closed at session bests. The 10-year shifted weaker through the session in sympathy with US tsy futures in Asia-Pac trade.

• Today’s supply saw overall good demand (cover ratios 2.64x to 3.46x) consistent with last week’s auction. The May-26 bid, however, fell well short of the robust demand (cover ratio of 6.25x) displayed at the April 6^th auction. Demand for short-end bonds was particularly strong, which could be attributed to concerns over potential over-tightening by the RBNZ, which had unexpectedly raised interest rates by 50bp the day before. The 2/10 cash curve nonetheless steepened around 2bp post-auction.
• Swap rates closed 4-10bp lower with implied swap spreads around 2bp tighter.
• RBNZ dated OIS closed 3-11bp softer with Apr’24 leading. 24bp of tightening is priced for the May 24 meeting with terminal OCR expectations at 5.57%.
• Building approvals rose 7% m/m in March as the impact of cyclone Gabrielle was partially unwound. ANZ commodity export prices fell 1.7% m/m in April.
• The local calendar is light tomorrow with the RBA Statement on Monetary Policy as the Antipodean highlight.
• The US calendar sees the release of the March Trade balance and initial jobless claims data.