NZGBS: Post-RBNZ Rally Extends

NZGBs closed on a strong note, led by the short end, with yields 2-13bps lower. Today’s move extends the post-RBNZ rally in the 2-year NZGB to 25bps. By contrast, the 10-year yield is 8bps lower.

• Today’s supply sees mixed results, with cover ratios ranging from 1.59x (May-34) to 3.73x (May-41) across the bond lines.
• July monthly prices, which account for around 40% of the CPI basket, were mixed with most showing lower or steady inflation rates except food which picked up. The RBNZ revised down its Q3 CPI expectations to 2.3% y/y.
• The RBNZ noted some higher frequency indicators that it looks at. One of these indicators is card transactions and July printed today up 0.7% m/m to be down 0.8% y/y but retail fell 0.1% m/m and 3.9% y/y, the sixth consecutive monthly decline. July is in line with the RBNZ’s view of weak growth.
• Swap rates closed 6-14bps lower, with the 2s10s steeper.
• RBNZ dated OIS pricing is 18-31bps softer across meetings than pre-RBNZ Decision levels. Going into yesterday’s meeting the market had priced a 58% chance of a 25bp cut. The market now prices 39bps of easing for the next meeting, with a cumulative 82bps by November.
• Tomorrow, the local calendar will see BusinessNZ Manufacturing PMI, PPI and Non-Resident Bond Holdings data.