NZGBS: Sharply Cheaper With US Tsys Following US CPI Beat

In local morning trade, NZGBs are 7-8bps cheaper after US CPI data savaged US tsys, with yields finishing 9-21bps higher. The 2/10 curve flattened. The January CPI report, which exceeded expectations, strongly supported the FOMC's patient stance and dealt a significant blow to dovish expectations for near-term policy easing.

• Both headline and core CPI inflation figures for January surpassed expectations by 0.1 percentage points, with rounding pushing the annual figures up by 0.2 percentage points. The core measure increased by 0.4% m/m, maintaining the annual increase of 3.9% y/y, unchanged from the prior month.
• Projected Fed rate cut pricing continued to ebb: March’s chance of a 25bp rate cut is currently at 11% vs. 18% on Monday. The May meeting finished with a cumulative easing of 10bps at 5.23% and June with a cumulative 24bps at 5.09%.
• Swap rates are 8bps higher.
• RBNZ dated OIS pricing is 1-6bps firmer, with November leading. A cumulative easing of 48bps is priced for year-end from a peak of 5.67%. This compares to 100bps of easing off 5.53% at the end of January.
• Retail Card Spending rose 1.7% m/m in January versus a revised -1.7% in December, while January Food Prices rose 0.9% m/m. REINZ House Sales rose 4.9% y/y.