NZGBS: Richer As US Tsys Strengthen After ECI & PCE Deflator Data

In early local trade, NZGBs are 5-8bp richer after US tsys finished in positive territory in trading ahead of the weekend, but off early session highs, following a knee-jerk bid on a lower-than-estimated gain in the Employment Cost Index (1.0% vs. 1.1% est). Core PCE printed in line at 4.1%, with core non-housing services, the Fed’s preferred indicator, easing a tenth to 0.22% m/m.

• Swap rates are 7-8bp lower with implied swap spreads narrower.
• RBNZ dated OIS pricing is little changed with the expected terminal OCR sitting at 5.66%.
• This week the local calendar sees ANZ Business Confidence (Jul) on Monday, CoreLogic House Prices (Jul) and Building Permits (Jun) on Tuesday and Q2 Employment and Wages data on Wednesday. The unemployment rate is forecast to rise to 3.5% from 3.4% in line with the RBNZ’s forecast. (See link)
• In Australia, the highlight will be the RBA policy meeting on Tuesday.
• Morgan Stanley expects “the 1y+ NZGB index to extend by 0.003y in July, compared to an average July extension of 0.023y and an average month's extension of 0.029y. About NZ$1 billion of issuance will affect the extension, and no bonds will fall out of the index.”