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NZGBS: Little Changed Ahead Of RBNZ Policy Decision, US Tsys Rally On PPI Data

BONDS

In local morning trade, NZGBs are slightly richer ahead of today’s RBNZ Policy Decision.

  • Overnight, US tsys finished richer, with the 2-year yield 9bps lower and the 10-year down 6bps, after a benign PPI print.
  • PPI final demand was softer than expected in July at 0.10% m/m (cons 0.2%). It came with a net upward revision of 0.09pps but that was mainly in March and May, whilst June was revised down from 0.22% to 0.18%.
  • We expect the RBNZ to discuss a rate cut at the today's meeting but opt to keep monetary policy unchanged. Nevertheless, we expect the bank to communicate its intention to ease before year-end through its statement, press conference and updated staff forecasts. It is a close call today with 9 of 23 forecasters on Bloomberg expecting a cut. See here for the full preview.
  • Swap rates closed 2bps lower.
  • RBNZ dated OIS pricing is little changed across meetings today. The market attaches a 58% chance of a 25bp cut today versus 69% on Friday and 43% before RBNZ inflation expectations data last week. A cumulative 47bps of easing is priced for the October meeting, with 87bps of cuts by year-end.
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