NZGBS: Richer & Just Off Best Levels, NZ-US 10Y Differential Unchanged

NZGBs closed 5bps richer across benchmarks, just off session bests. In the absence of domestic data, local participants have used US tsys for directional guidance.

• The NZ-US 10-year yield differential is unchanged versus yesterday’s local close. At +22bps, the differential sits around its tightest level since mid-2021. Before this narrowing started in March, the differential had oscillated between +30 and +80bps since late 2022.
• Swap rates closed 5-6bps lower.
• RBNZ dated OIS pricing closed is 2-5bps softer for meetings beyond August, with November leading. A cumulative 54bps of easing is priced by year-end.
• Tomorrow, the local calendar will see Trade Balance data.
• Also tomorrow, Australia will release Q1 CPI data. Bloomberg consensus expects it to ease to 3.5% y/y from 4.1% but for the quarterly rise to pick up. Trimmed mean is forecast to drop to 3.8% from 4.2%, helped by favourable base effects.
• (MNI) Given the upward surprise to NZ’s domestic inflation in Q1, there is a risk the services component remains “sticky”, which the RBA is monitoring closely (See link)