NZGBS: Off Bests Awaiting The FOMC Decision

NZGBs closed off best levels despite stronger U.S. Tsys in Asia-Pac trade. ACGB's underperformance versus U.S. Tsys likely assisted the move away from yield lows. At the close, the 2-year and 10-year benchmarks were respectively 11bp and 9bp higher in yield. NZGBs however outperformed ACGBs with the cash AU/NZ 10-year yield differential +4bp at -89bp. This differential hit a multi-decade low of around -100bp last week after the worse-than-expected Q4 current account deficit.

• Swaps closed at session cheaps with rates 11-14bp higher, implying wider swap spreads, with the 2s10s curve 3bp flatter.
• RBNZ dated OIS pricing closed 4-10bp firmer for meetings beyond April. April meeting pricing remained around 25bp of tightening. Terminal OCR expectations firmed 5bp to 5.22%.
• On the local data front, Q1 NZ Consumer Confidence showed a modest rise in sentiment to 77.7 from 75.6 but remained on the pessimistic side of the ledger.
• The local calendar is light for the remainder of the week with RBNZ Chief Economist Conway’s speech, “The path back to low inflation in NZ”, at the KangaNews DCM forum tomorrow the highlight.
• Attention now turns to tonight’s FOMC policy decision. BBG consensus expects a 25bp hike, although some analysts expect no move. The market is pricing an 82% chance of a 25bp hike.