NZGBS: Off Bests Despite Weaker GDP Data

After opening stronger in sympathy with global FI developments, NZGBs add to gains on the weaker-than-expected GDP data (-0.6% Q/Q Vs. -0.2% expected) but fail to hold at best levels as U.S. Tsys and ACGBs cheapen in Asia-Pac trade. NZGBs close 9-16bp richer, but 9bp off bests with the 2/10 curve +7bp.

• Swaps close well off richest levels with rates 13-23bp lower, implying significantly tighter swap spreads.
• While the GDP data was weaker than analysts expected, it was much weaker than the RBNZ’s forecast of +0.7% Q/Q. On the surface, the data could be seen as supporting a tightening pause in April, but that ignores recent volatility in the data. The RBNZ is likely to want clearer signals that it has done enough in its fight against capacity constraints and inflation before halting tightening.
• RBNZ dated OIS pricing is 10-18bp softer on the day, but 4-7bp firmer than pre-data levels. April meeting pricing shows 15bp of tightening.
• With no antipodean data slated until next week, the market will remain transfixed on headlines associated with the global banking crisis. With the focus, at least temporarily, shifting to Europe given Credit Suisse developments, all eyes will be on the ECB policy decision tonight (BBG consensus expects 50bp hike).