NZGBS: Firmer Post-CPI As Major Metrics Miss RBNZ Expectations

Benchmark NZGB yields are 7-8bp lower across the curve, with the firmer than expected headline CPI Y/Y & Q/Q (both of which topped the BBG survey median by 0.1ppt) being overshadowed by the larger than expected step down in non-tradable inflation in Q/Q terms (to a still elevated +1.5% Q/Q, while the Y/Y print held steady at +6.6%) and Tuesday’s firming in core global FI markets.

• It is also worth noting that the headline readings (+1.4% Q/Q & +7.2% Y/Y) are shy of the projections provided in the RBNZ’s Nov MPS (+1.7% Q/Q & +7.5 Y/Y), with the same holding true for the non-tradables metrics (+1.9% Q/Q & +7.0% Y/Y).
• Swap rates are 7-8bp lower across the curve post-CPI, leaving swap spreads a touch tighter on the day. 2-Year swap rates are back below 5.00%, continuing the recent oscillation around that round number.
• The miss in the major CPI metrics vs. RBNZ expectations has weighed on RBNZ dated OIS, with 62bp of tightening now priced for next month’s meeting (virtually a 50/50 chance of a 50 or 75bp step as markets weigh up the situation post-data and question if inflation has peaked), alongside a terminal OCR of just under 5.40%.
• Post-data adjustments will dominate over the next couple of hours, with the potential for trans-Tasman impetus on the back of the upcoming Australian CPI reading also apparent.