NZGBS: Moderating 2-Year Inflation Expectations Deliver A Mid-Session Reversal

NZGBS were a little weaker in morning trade before reversing sharply as the RBNZ's survey of inflation expectations at the 2-year point moderated to 3.30%, declining from the cycle high of 3.62% seen in Q4.

• Short-end benchmark yields swung from being 3bp higher pre-data to being down 6bp at the close. 2-year swaps followed a similar path but outperformed, closing down 9bp.
• In the 10-year zone, bond yields and swap rates were unable to hold their post-data dips, both closing higher on the day, delivering an 8bp and 10bp steepening of their respective curves (vs. 2s).
• RBNZ-dated OIS also responded to the data by reducing the amount of tightening priced for this month’s meeting to less than 60bp for the first time in around a week. The largest mover on the day was pricing for the July meeting, with terminal OCR pricing moderating to just under 5.40% after threatening to break 5.50% yesterday.
• Other economic data of note included the REINZ House Price Index which delivered its fourteenth consecutive monthly decline, albeit with the m/m move moderating. National house prices were down 13.9% y/y in January.
• Tomorrow’s local docket is non-existent, which will leave reaction to the U.S. CPI print at the fore.