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NZGBS: Richer Ahead Of RBNZ Policy Decision

BONDS

In local morning trade, NZGBs are 4bps richer after US tsys finally found a bid ahead of today’s US CPI data and FOMC Minutes.

  • Dip buying, short covering and technicals supported today's rally. The market overcame a very poor 3-year auction. The US 2-year slid 5bps to 4.74% and the 10-year richened 6bps to 4.36.
  • The local market’s focus today, however, will be on the RBNZ’s Policy Decision. We expect it to leave rates again at 5.5% where they have been since May last year. The RBNZ is firmly on hold and there appears to be a high bar for it to shift rates in either direction for now. Bloomberg consensus is also unanimous in expecting the OCR to be left unchanged. (See MNI Preview here)
  • The April meeting will not include a forecast update or a press conference. We expect the statement to be in line with February’s softer tone with a moderate tightening bias retained.
  • There's a 5% probability priced in for a 25bp hike at today’s meeting. The pricing level of 5.51% for the April meeting also represents the anticipated terminal OCR.
  • By year-end, a cumulative 60bps of easing is factored into the pricing.
  • Swap rates are 3bps lower.
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