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NZGBS: Sharp Rally As RBNZ Lower Its Forecast Peak For the OCR

BONDS

A sharp rally has been NZGBs initial reaction to the RBNZ Policy Decision, which left the OCR at 5.5%. While the RBNZ stated that the OCR will remain in restrictive territory for a sustained period of time, it lowered the forecast peak for the OCR to 5.60% from 5.69% previously.

  • The RBNZ added that the risks around inflation had become more balanced and flagged the potential for rate cuts in 2025.
  • NZGBs are 7-10bps richer after the decision and 5-8bps richer across benchmarks on the day. The 2/10 curve is steeper.
  • Swap rates are 10-14bps lower after the decision and 7-13bps lower on the day.
  • RBNZ dated OIS pricing is 6-13bps softer after the decision. A cumulative 42bps of easing is priced by year-end from an expected OCR peak of 5.54%.
  • Prior to 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.
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