NZGBS: Post-Budget Sell-Off Continues

NZGBs closed weaker, but above the session’s worst levels, with 2- and 10-year benchmark yields 15bp and 10bp higher respectively.

• Strong demand for the May-32 bond (cover at 5.13x) at the weekly round of NZ$400mn supply likely assisted the move away from session cheaps. The cover ratio for the May-26 bond was lower at 2.43x versus 3.46x at the last auction. The May-41 bond saw a similar cover at 2.66x.
• Nonetheless, the NZGB 2-year benchmark yield sits 28bp higher in post-Budget trading with the 10-year yield 16bp higher.
• The NZ/US 10-year yield differential is 3bp wider at +77bp, compared to around 60bp at the start of the week.
• Swap rates are 10-19bp higher with the 2s10s curve 9bp flatter.
• RBNZ dated OIS has firmed 9-29bp post-Budget across meetings with early ’24 leading. 37bp of tightening is priced for next week’s RBNZ meeting. Terminal Rate expectations lift to a new cycle high of 5.92%.
• ASB now expects a 50bp hike at next week's RBNZ policy meeting.
• The local calendar is light ahead of Wednesday’s release of Retail Sales Ex-Inflation ahead of the RBNZ policy decision on the same day.
• With the global calendar light today, the markets will be on headlines watch, particularly regarding debt ceiling negotiations.