NZGBS: Little Changed After Budget

NZGBs remain slightly cheaper on the day but little changed after the release of the Government’s Budget. Key points include:

• The Government announced a tax cut plan totalling NZ$14.7 billion over the next four years. The return to a budget surplus is expected to be delayed until 2028. For the fiscal year 2024-25, New Zealand forecasts a budget deficit of NZ$13.4 billion vs NZ$6.1 billion in December.
• The country anticipates a weaker economy with reduced tax revenue and projects net debt to 41.8% of GDP by 2028 vs 37.6% in December. Concurrently, NZ is increasing its bond program by NZ$12 billion over the same period.
• Annual net immigration is assumed to have peaked at 142,000 in December and will slow to 56,000 by mid-2025.
• Interest rates are assumed to fall from 4q 2024.
• The swaps curve holds twist-steepening, with rates -2bps to +4bps.
• On the day, RBNZ dated OIS pricing is little changed for meetings out to Nov-24 and 2-4bps softer beyond. A cumulative 17bps of easing is priced by year-end.