NZGBS: RBNZ Fails To Spark A Meaningful Post-Decision Reaction

NZGBs had a subdued reaction to the RBNZ policy decision as the central bank delivered on the expected 50bp rate hike and left its peak OCR projection at 5.50%, albeit now seen slightly later. While the RBNZ noted tentative signs of easing price pressures, they still saw higher rates as necessary with demand outpacing supply and labour shortages contributing to heightened wage inflation.

• NZGB yields close 9-11bp higher. After yesterday’s outsized short-end NZGB response to NZ Treasury comments on RBNZ policy (re: the impact of the cyclone), there was the risk of a ‘sell the rumour, buy the event’ reaction today given the RBNZ’s non-committal response to the issue. That clearly wasn’t the case with 2-year yields holding close to 20bp higher than Monday’s close.
• Swap rates move 3bp lower post-decision, closing 9-10bp higher.
• RBNZ-dated OIS pricing declines 1-2bp for the further out meetings. Terminal rate expectations currently sit just below ~5.40%, 15bp higher than the level prevailing at the end of last week.
• With the RBNZ failing to surprise, the market guidance may have to come from abroad with Australia the most likely candidate after the lower-than-expected Q4 WPI print sparked a stellar outperformance vs. NZ. AU-NZ 2-year swap differential narrowed 14bp on the day.