NZGBs See Parallel Richening Post-RBA, RBNZ On Deck

A fairly parallel 12-13bp shift lower for NZGB yields this morning as the market plays catch up to yesterday’s RBA decision, although the early rally in U.S. Tsys wasn’t sticky on Tuesday, which may have curbed the NZGB bid.

• 2-Year swap rates are ~36bp off cycle highs that were registered last week.
• The RBNZ decision provides the key point of interest today (see our full preview here), with a 50bp move fully baked into OIS alongside unanimous expectations for such a move within the analytic community.
• Assuming that move is delivered focus will quickly shift to the guidance in the accompanying statement.
• A reminder that the Bank’s August OCR track had a peak of 4.10%. OIS is still more aggressive than that (even after the RBA-driven downward adjustment), with a terminal rate of ~4.50% priced there, back from the ~4.90% seen at the backend of September.
• The NZ economy is late cycle and RBNZ Governor Orr recently noted that the tightening cycle is “very mature,” but stressed there is still “some work to do with rates.” The RBA’s move has some pointing to the potential for a similar pivot from the RBNZ in the coming months, although the market continues to near-enough fully price back-to-back 50bp hikes across the Bank’s 2 remaining meetings of ’22.