NZGBS: Early Cheapening Holds Despite Light Firming in U.S. Tsys

NZGBs weren’t interested in adjusting alongside the modest richening in U.S. Tsys after ticking lower at the re-open, extending as U.S. Tsys initially cheapened, then holding losses during the light Tsy rally. That left the major NZGB benchmarks 3-4bp cheaper at the bell, with very limited bear steepening apparent.

• Post-U.S. PPI adjustments and focus on this week’s HYEFU (which could provide a slightly more benign budgetary projection given the economic outlook/higher short-term issuance needs) were in the driving seat.
• Elsewhere, payside swap flow seemed to help, with the major swap benchmarks running 4.0-5.5bp higher at the bell, as 5s led the move higher, resulting in swap spread widening.
• The major short-dated OIS measures firmed incrementally, with ~68bp of tightening priced for the Feb ’23 meeting and a terminal OCR of ~5.45% eyed.
• Weekend news flow saw PM Ardern’s ruling Labour Party lose a by-election, and therefore a seat in parliament, pointing to (previously documented) headwinds in next year’s general election.
• Looking ahead to later this week we have a busy local docket, Tuesday will bring REINZ house price and food price data. Further out, we get the aforementioned HYEFU, Q3 current account and GDP data, the BusinessNZ m’fing PMI and RBNZ Governor Orr’s latest parliamentary appearance.