NZGBS: Richer But Underperforms The $-Bloc, NZ Budget Deficit Update Weighs

NZGBs closed 2-5bps richer but in the cheaper half of the local session’s trading range. The NZGB 10-year sharply underperformed its $-bloc counterparts, with the NZ-US and the NZ-AU yield differentials 10bps and 6bps wider respectively. At +81bp and +95bp respectively, the differentials are close to their widest levels for the year.

• The performance of NZGBs may have been influenced by news indicating that the NZ government's annual budget deficit contracted less than originally predicted in May. According to the NZ Treasury, the deficit for the year ended June 30 stood at NZ$9.45bn, which marked only a slight improvement from the NZ$9.69bn recorded in the previous year. In contrast, the government had projected a deficit of NZ$6.96bn in its May budget.
• Mixed results at weekly bond auctions also likely weighed, with the cover ratios for the May-28 and Apr-33 lines falling below 2.00x. In contrast, the May-41 bond saw a solid 3.34x.
• Swap rates are 3-5bps lower, with the 2s10s curve steeper.
• Following the RBNZ’s hint yesterday that they may opt to maintain a tight monetary policy for an extended period instead of pursuing further tightening, RBNZ-dated OIS rates have softened. They are now 3-9bps softer from pre-decision levels across meetings extending to August 2024.
• Tomorrow the local calendar is empty.