NZGBS: Richer With US Tsys After Weak US Data

In local morning trade, NZGBs are 5bps richer after US tsy yields and US equities plunged after weaker-than-expected ISM manufacturing and jobless claims data.

• Initial jobless claims were notably higher coming in at 249k vs 236k, while continuing claims were 1877k vs 1855k. ISM Mfg was 46.8 vs 48.58, the lowest since November 23, while the largest miss was employment which came in at 43.4 vs 49.2 est. This was the lowest level since the pandemic.
• The markets read the reports as more evidence of a slumping economy, with the downdraft in the ISM employment component as a harbinger of an "unwelcome" decline in employment that Chair Powell said would be a condition for a rate cut.
• US OIS pricing softened a touch with the market fully pricing in one 25bps cut for September and a cumulative 82bps of cuts into year-end.
• The NZ-US 10-year yield differential is 3bps wider at +26bps, with the NZ-AU 10-year differential 2bps tighter at +19bps.
• Swap rates closed 4-5bps lower, with the 2s10s curve flatter.
• RBNZ dated OIS pricing is 1-7bps softer across meetings, with mid-2025 leading. The market gives a 25bp cut in August a 56% probability. A cumulative 76bps of easing is priced by year-end.
• Today, the local calendar is empty.