NZGBS: Outperforming $-Bloc Counterparts Ahead Of The Pre-Election Fiscal Update

NZGBs closed the session at their highest levels, with benchmark yields showing a decline of 3-6bp. In the absence of domestic catalysts, local market participants appear to have been influenced by developments in US tsys during the Asia-Pac session. Nevertheless, NZGBs have outperformed their counterparts in the $-bloc, which is noteworthy as it precedes the Pre-Election Economic and Fiscal Update scheduled for Tuesday.

• NZ-US and NZ-AU 10-year yield differentials have narrowed by 5bp and 3bp, respectively. Both differentials had been widening until about a week ago, aligning with speculation that NZ’s fiscal situation was deteriorating beyond what was anticipated in the recent NZ budget. The recent outperformance of NZGBs over the past week appears to be driven by position adjustments or investors capitalising on more favourable entry points.
• Swap rates are 1-8bp lower, with the implied 2s10s swap spread box flatter.
• RBNZ dated OIS pricing is little changed across meetings out to May’24 and 1-3bp softer beyond.
• Next week the local calendar is empty on Monday, ahead of the Pre-Election Economic and Fiscal Update and Retail Card Spending on Tuesday.
• On Thursday 14 September, the NZ Treasury plans to sell NZ$200mn of the 0.5% May-26 bond, NZ$200mn of the 1.50% May-31 bond and NZ$100mn of the 1.75% May-41 bond.