NZGBS: Sharply Cheaper Despite An Improvement In BoP, Q2 GDP Tomorrow

NZGBs closed near the session’s worst levels, with benchmark yields 5-7bps higher. Local participants looked past the positive news embedded in the narrower-than-expected current account deficit. The release of an 8.2% of GDP Q1 current account deficit in mid-March, which caught the attention of S&P bond ratings and led to consequential comments from them, triggered a sharp sell-off in NZGBs.

• NZ-US and NZ-AU 10-year yield differentials are flat and 1bp wider respectively.
• Swap rates are 4-7bps higher.
• RBNZ dated OIS pricing is flat to 8bps firmer, with Aug’24 leading.
• The Q2 NZ current account deficit narrowed more than expected to NZ$4.2bn from a downwardly revised NZ$4.7bn. Seasonally adjusted it narrowed NZ$1bn to NZ$6.6bn, due to a better trade deficit. This resulted in the ratio to GDP falling to 7.5% from 8.2% in Q1. This brings it on track to meet the RBNZ’s revised forecast of 6.8% for Q1 2024. Q4 2022 looks to have been the peak at 8.8% of GDP, one of the worst in the OECD.
• Tomorrow the local calendar sees Q2 GDP.
• Tomorrow the NZ Treasury plans to sell NZ$200mn of the 0.25% May-28 bond, NZ$225mn of the 2.0% May-32 bond and NZ$75mn of the 2.75% May-51 bond.