NZGBS: Selling Fatigue Sets In

NZGBs stage a sharp mid-session reversal after a 3-day weakening comes to an end. NZ Treasury comments, reinforced by the RBNZ Meeting and its subsequent communique, had managed to bring the cumulative rise in the 2-year yields this week to 35bp at the session’s cheaps. The 10-year yield had a similar rise fuelled by the threat of future NZGB supply. With the NZ-AU 10-year yield differential 30bp wider on the week domestic factors were clearly the dominant driver.

• It was however clear that selling fatigue had set in mid-session when hawkish comments from RBNZ Deputy Governor Silk were unable to hold yields at their highs. Silk stated that all options were on the table at the April meeting (25bp, 50bp or 75bp, but not a pause) and that the bank’s forecast for the peak cash rate “was not set in stone”.
• NZGBs close -1 to -3bp with the curve 2bp more inverted.
• Swaps underperformed bonds with the 2-year rate 4bp higher and the 2s10s curve 4bp more inverted.
• RBNZ dated-OIS closed unchanged with pricing for the April meeting at 39bp of tightening and terminal OCR at 5.46%.
• After this week's rise in yields, the market was clearly too complacent going into the RBNZ meeting. Today’s mid-session reversal suggests the market needs to catch its breath. Next week’s Antipodean data drop however threatens to make it a brief pause.