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NZGBS: Little Changed After Return To Surplus Pushed Back A Year In PEFU

BONDS

NZGBs are little changed after the government foreshadowed larger budget deficits in the Pre-election Economic and Fiscal Update. Treasury said the deficit will widen to NZ$11.4 billion in the year ending June 2024 compared with a NZ$7.6 billion gap forecast in May’s budget.

  • The books don’t show a surplus until 2027, a year later than previously projected. Net debt is projected to peak at 22.8 per cent of GDP in 2024/25 and fall to 21 per cent of GDP by the end of the forecast period. (see link)
  • New Zealand Debt Management revises the government bond program for 2023/24 to NZ$36 billion, NZ$2 billion higher than published in the Budget Economic and Fiscal Update 2023. The forecast NZGB programmes for 2024/25 and 2026/27 have also been increased, by NZ$3 billion and NZ$4 billion respectively. The forecast for the 2025/26 year is unchanged.
  • Cash NZGBs are flat to 1bp cheaper, with the 2/10 curve steeper.
  • Swap rates are unchanged on the day, with implied swap spreads unchanged.
  • RBNZ dated OIS pricing is little changed on the day, with terminal OCR expectations steady at 5.62%.

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