NZGBS: Firm Demand At Auctions Helps Support Space

NZGBS were a little more resilient than U.S. Tsys after adjusting to Wednesday’s firming in core global FI markets. The major benchmarks were 2bp cheaper to 4bp richer at the close, withs 2s a touch cheaper and 10s outperforming as the curve twist flattened.

• A solid round of NZDM auctions (covering NZGB May-28, May-32 & Apr-37) aided NZGBs even after Tsy cheapening weighed, with cover ratios across the 3 offerings ranging from the low 2s to the mid 4s, allowing the space to correct from cheapest levels of the session.
• The early swap spread tightening impulse faded, with the major swap rates finishing 1bp higher to 2bp lower as that curve also twist flattened, leaving swap spreads little changed to a touch wider. Note that the flattening of the 2-/10-Year swap spread moved to fresh cycle extremes, pushing below the -90bp mark. That moves it closer to its GFC inverted extreme as participants weigh up the prospect of continued RBNZ tightening into a recession.
• RBNZ dated OIS was little changed/marginally firmer, with ~65bp of tightening priced for the Bank’s Feb ’23 meeting, while the strip continues to eye a terminal OCR of 5.35-5.40%.
• The monthly BNZ-SEEK report revealed an 8.1% M/M fall in job adverts in November, with BNZ noting that “there is now clearer evidence that NZ job advertising is coming off the boil,” although they flagged that “advertisement levels are still relatively high, roughly where they were a year ago.”
• Looking ahead, Friday’s local docket is headline by manufacturing activity data for Q3 and monthly card spending readings.