NZGBS: Early, Modest Cheapening Holds, CPI In View

A near-enough flatline session for the NZ rates space after the initial adjustments, as the continued observance of the LNY holidays limits broader liquidity in Asia-Pac markets and regional headline flow.

• The move higher in U.S. Tsy & German Bund yields observed at the backend of last week spilled over into Monday trade, subsequently applying some pressure to NZGBs in early Tuesday dealing, with the benchmarks running 3.0-4.5bp cheaper at the close as the curve bear steepened.
• Swap rates finished 3-4bp higher, moving in sympathy with bonds.
• Local data flow saw a slowing in the rate of expansion in the latest BusinessNZ PSI print, with the collators noting that “December marked a significant slowdown in a short space of time for the PSI, although the loftiness in New Orders/Business suggested there was still a lot of demand- side pressure at play.”
• Political matters continue to dominate domestic headlines, but these are second order (at best) considerations for markets given the domestic and macro backdrops.
• Tomorrow’s Q4 CPI data presents the domestic highlight of the week, with near-term RBNZ dated OIS pricing steady today, showing just under 65bp of tightening for next month’s meeting, alongside a terminal OCR of just over 5.45%.