NZGBS: Sharp Rally After RBNZ Signals It Is Happy With Where Rates Are

NZGBs closed sharply richer, with benchmark yields 9-16bps lower and the 2/10 curve steeper, after the RBNZ left the OCR at 5.50%, as widely expected.

• The main change from the RBNZ was the more neutral tone to the meeting assessment with November’s more hawkish elements removed. The tone suggested that the RBNZ is happy with where rates are for now and is not looking to change them in either direction, but policy will need to stay restrictive to return inflation to target.
• Swap rates are 8-16bps lower, with the 2s10s curve steeper.
• RBNZ dated OIS pricing is 5-21bps softer across meetings. A cumulative 52bps of easing is priced by year-end from an expected OCR peak of 5.54%.
• Before the decision, the market had attached a 29% chance of a 25bp hike at today’s meeting, with an anticipated terminal OCR of 5.65% (reflecting a 61% probability of a 25bp hike) by the May meeting.
• Tomorrow, the local calendar will see ANZ Business Confidence, along with RBNZ Governor Orr’s appearance in front of a Parliament Select Committee on MPS.
• Tomorrow, the NZ Treasury plans to sell NZ$300mn of the 0.25% May-28 bond, NZ$150mn of the 3.5% Apr-33 bond and NZ$50mn of the 1.75% May-41 bond.