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NZGBS: Post-CPI Sell-Off Unwound, 65bps Of Easing Priced By Year-End

BONDS

NZGBs closed at the session's best levels, with benchmark yields 4bps lower. Local participants seemed content to overlook the 1-2bp cheapening in US tsys during today’s Asia-Pac session and yesterday’s modest bear flattening.

  • Today's move effectively unwound the sell-off triggered by yesterday’s Q2 CPI print. As a result, NZGB benchmark yields remain 28-35bps lower than pre-RBNZ decision levels, with the 2/10 curve 6bps steeper.
  • The NZ-US 10-year yield differential has narrowed by 4bps to +18bps, its tightest level since late 2022. This differential has oscillated between +20 and +80bps since late 2022.
  • Today’s weekly supply was well absorbed with cover ratios printing 2.5x to 3.3x.
  • Swap rates closed 4-5bps lower, with the 2s10s curve steeper.
  • RBNZ dated OIS pricing closed little changed on the day but remains 18-46bps softer than pre-RBNZ decision levels. The market is pricing a 39% chance of a cut in August, and a 79% chance of a cut by October. A cumulative 65bps of easing is priced by year-end.
  • Tomorrow, the local calendar is empty.
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