NZGBS: Richer, Digests RBA Decision & US Tsy Rally

NZGBs opened 1-4bp richer as the local market reacted to both ACGB's response to the RBA's surprise 25bp rate hike (which occurred after the market closed) and lower US Treasury yields, resulting from concerns about softer data and US regional banks' exposure to commercial real estate. The US JOLTS report showed that job openings had fallen more than expected in March, indicating a cooling labour market. The KBW banking index dropped almost 5.6%.

• Despite underperforming compared to US tsys, with the NZ/US 10-year yield differential 10bp wider, NZGBs have performed in line with the ACGB 10-year.
• Swap rates are 1-5bp lower with the 2s10s curve 4bp flatter.
• RBNZ dated OIS is little changed with 24bp of tightening priced for the May meeting.
• The RBNZ in its Financial Stability Report stated that the NZ financial system was well placed to handle higher interest rates and international financial disruptions. To date, there have been limited signs of distress in banks’ lending portfolios.
• The local calendar sees the release of the Q1 Labour Market Report with BBG consensus expecting some cooling in tight labour market conditions with the unemployment rate increasing to 3.5% from 3.4%. Q1 wage growth is expected to remain at Q4’s strong pace of +1.1% Q/Q.