NZGBS: FOMC Decision & GDP Miss Sparks A Ferocious Rally

NZGBs closed 22-29bps richer across benchmarks, with the 5-year leading, after Q3 GDP surprised on the downside printing -0.3% q/q (-0.6% y/y) versus expectations of +0.2% (+0.5%). Q2 was revised down 0.4pp to 0.5% q/q and 0.3pp to 1.5% y/y.

• The expenditure measure of GDP was weak falling 0.7% q/q but this was after a strong +0.9%. All of the main components fell with private consumption down 0.6% q/q, government spending -1.8%, GFCF -3.4% and the net export contribution -0.5pp.
• While the RBNZ predicted +0.3% q/q in its November update, it did have -0.3% in August. This outcome is likely to mean that the risk of another hike, which the RBNZ threatened at its last meeting, is highly unlikely as demand is moving more in line with supply.
• NZGBs were 13-20bps richer in post-GDP dealings.
• Swap rates closed 21-29bps lower, with the 2s10s curve steeper.
• RBNZ dated OIS pricing shunted 6-40bps softer across meetings, with Nov’24 leading. The market now prices 103bps of easing by Nov’24.
• Tomorrow, the local calendar sees BusinessNZ Manufacturing PMI.