NZGBS: Little Changed, Digesting Sticky Core Inflation

In early local trade, NZGBs are flat to 1bp cheaper. This follows a NY session where US yields ended lower by 1bp-2bp at the short end and 4bp-6bp at the long end.

• The key event overnight was the release of lower-than-expected UK CPI (0.1% MoM vs. 0.4% est). UK gilts were 10-20bp richer.
• The local market opens today after yesterday’s Q2 CPI data showed higher than expected non-tradeable CPI, capturing domestic price pressures, and sticky core inflation, including the RBNZ’s sectoral factor model. This inflation gauge was unchanged at the revised Q1 rate of 5.8%, the historical peak for the series starting in 2002. Accordingly, core price pressures will be monitored closely and if their stickiness risks the target being achieved in H2 2024 then the RBNZ may hike again.
• Swap rates are flat to 2bp lower with the 2s10s curve flatter and implied swap spreads tighter.
• RBNZ dated OIS pricing is little changed across meetings.
• Today the local calendar sees no data released.
• In Australia, the all-important June Employment report is released today. The market is expecting a gain of 15k jobs with the unemployment rate unchanged at 3.6%.
• Today the NZ Treasury will sell NZ$225mn of the 0.25% May-28 bond, NZ$225mn of the 2.0% May-32 bond and NZ$50mn of the 2.75% Apr-37.