NZGBS: Government Talks Up Impact Of Cyclone On Economy & RBNZ, Again

NZGBs are incrementally cheaper after Q4 PPI data and the NZ Treasury noting that the rebuild after Cyclone Gabrielle will support economic activity, with more demand adding to inflationary pressure which may result in the RBNZ keeping rates higher for longer. This was the second round of communique from the government re: RBNZ hikes in less than 24 hours, which could be viewed as some push back against recent speculation surrounding the potential for the RBNZ to pause the hiking cycle at tomorrow’s meeting in lieu of the recent floods and cyclone.

• Benchmark NZGBs are ~3bp cheaper across the curve, while swap rates have also pushed higher, leaving swap spreads wider. RBNZ-dated OIS for this week’s meeting is essentially unchanged, hovering just above 45bp, while terminal OCR pricing is incrementally firmer, ticking above 4.30%.