NZGBS: Sharply Cheaper Ahead Of Tomorrow’s Q2 Labour Market Data

NZGBs closed sharply cheaper but slightly off the session’s worst levels, with benchmark yields 6-9bps higher.

• Swap rates closed 5-8bps higher, with the belly of the curve underperforming.
• (Bloomberg) “Investors and some economists now expect New Zealand’s central bank to start cutting interest rates next week as markets globally ramp up bets on imminent monetary policy easing.”
• The RBNZ will cut the OCR by 25 basis points to 5.25% in its Aug. 14 Monetary Policy Statement and deliver two further reductions to 4.75% by the end of the year, Bank of New Zealand Head of Research Stephen Toplis predicted. Investors expect even more rapid action, with the OCR falling from 5.5% to 4.5% by November, swaps data show. (See link)
• RBNZ dated OIS pricing closed 2-9bps cheaper across meetings. A cumulative 98bps of easing is priced by year-end.
• Tomorrow, the local calendar will see Q2 Labour Market Data. With increasing easing expectations ahead of the RBNZ decision on August 14, this labour market data will be closely watched.
• If it is weaker than expected, there’s likely to be further rate cut calls. Bloomberg consensus expects the unemployment rate to rise 0.4pp to 4.7%, the highest since the Covid-impacted Q4 2020, and for wage pressures to ease.