NZGBS: Mid-Session Rally On AUS Jobs Data

Today delivered another session of U.S. Tsy-induced weakness in the morning, followed by a solid short-end-led rally sparked by market-friendly Antipodean data.

• Today’s major catalyst was the weaker-than-expected Australian employment data. NZGBs yields were up as much as 7-8bp ahead of the release. By the end of trading the 2-year benchmark had managed to reverse that move, closing 2.5bp richer. Further out, NZGBs rallied but not enough to completely wipe anyway morning weakness with the 5-year benchmark yield ending up 2bp and the 10-year benchmark up 5bp.
• Swap moves were less dramatic with the mid-session turnaround equating to a -4bp move in the 2-year rate and a -0.5bp move in the 10-year. The 2s10s curve was 7bp steeper on the day.
• RBNZ-dated OIS now shows just under 50bp of tightening for this month's meeting, continuing the recent pull lower. Terminal OCR pricing saw a more prominent move, declining to sub-5.35% versus the week’s high of ~5.50%.
• KiwiBank suggested that the RBNZ should stand pat at this month’s meeting, in lieu of Cyclone Gabrielle, although the bank does still expect the RBNZ to ultimately deliver a hike. This view weighed on the OIS strip ahead of the Australian data.
• The NZ Debt Management Office successfully sold NZ$200mn May-28, NZ$150mn Apr-33 and NZ$50mn Apr-37 with cover ratios of 3.48x, 2.57x and 2.72x, respectively (more than smooth passage after last week's uncovered auction in the belly).