NZGBS: Curve Twist Steepens, Wider Budget Deficit

NZGBs ended the trading session with the 2/10 cash curve twist steepening with yields 1bp lower to 3bp higher. The 2-year benchmark yield closed 8bp below the highest level of the day, while the 10-year yield closed only 3bp lower than its high. A strengthening in US tsys during Asia-Pac trading hours assisted the afternoon rally.

• This was despite the release of strong card spending data for the second consecutive month. Total card spending increased by 1% from the previous month, bringing the year-on-year growth rate to 9.8%. In March, card spending had increased by 2.3% m/m and 16.1% y/y.
• The NZ Treasury released its financial statements for the nine months ended March 31. The statements revealed that the budget deficit was NZ$2.48 billion wider than the projection in the half-year fiscal update. This may have contributed to the steepening of the cash curve. The Treasury cited lower tax revenue and additional expenditure related to the North Island weather events as the reasons for the wider deficit.
• The 2s10s swap curve bear steepened 5bp with rates flat to 5bp higher and implied swap spreads wider.
• RBNZ dated OIS was little changed on the day with 25bp of tightening for the upcoming May 24 meeting.
• There is no local data slated for tomorrow ahead of US CPI on Wednesday.