NZGBS: Near Bests As RBNZ Conway Speaks

In his speech at the KangaNews DCM forum (currently underway), titled “The path back to low inflation in NZ”, RBNZ Chief Economist Conway reiterated some very familiar themes, namely that inflation remained too high and well above target, and that strong demand outstripped supply with employment clearly above its maximum sustainable level.

• He did however note the conflict between monetary policy and financial stability and that in a stagflation environment of low growth, rising unemployment and high inflation, the optimal path for interest rates becomes less clear.
• The market’s initial reaction has been muted with NZGBs holding 7-9bp richer on the day, but slightly off bests, after the stronger lead from U.S Tsys post-FOMC.
• Swaps were 8-11bp stronger with implied swap spreads slightly tighter.
• RBNZ dated OIS remains 3-9bp softer for meetings beyond April. Terminal OCR expectations drop to 5.17% with 22bp of tightening priced for April.