NZGBS: Richer Going Into The RBNZ Decision

In local morning trade, NZGBs are 1-4bps richer with US tsy yields lower, led by the short end. The driving force was Governor Waller leaning dovish by touting potential cut timings. "If you see this [lower] inflation continuing for several more months, I don't know how long that might be - you could then start lowering the policy rate because inflation's lower." Governor Bowman’s reiteration that she continues to expect the need for a further hike held little sway.

• Today’s highlight will be the RBNZ decision. The market expects a firmly on-hold outcome, leaving the focus on the accompanying updated forecasts, statement and press conference (see our full preview here).
• RBNZ dated OIS pricing is changed across meetings. Notably, the market assigns a 15% probability to a 25bp hike at today's policy meeting.
• Terminal OCR expectations remain steady at 5.54%. It is noteworthy that the recent peak in the expected terminal rate, recorded at 5.72%, occurred in the lead-up to the Q3 CPI release in mid-October. Subsequently, expectations have undergone a gradual softening, amounting to nearly 20bps. Looking ahead, the market fully prices in a 25bp rate cut by August 2024.
• Swap rates are 4-5bps lower.
• NZ Debt Management plans two nominal bond auctions, each of NZ$500mn, in December.