NZGBS: Slightly Cheaper, Hawkish FOMC Minutes, PPI Due

In early local trade, NZGBs are slightly cheaper after US tsys finished 1-4bp cheaper, with the curve steeper. Yields were pressured by more hawkish than anticipated FOMC minutes as most policymakers saw an upside risk to inflation.

• “Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy” However, two officials favoured holding rates steady (or could have supported such a proposal) and “several” saw a need to consider the risk of overtightening financial conditions.
• Earlier in the session, industrial production and housing starts printed stronger than expected, but building permits were weaker.
• In an address today to a Parliamentary Select Committee on yesterday’s MPS, RBNZ Governor Orr stated that he believed the current level of interest rates is constraining spending and hence inflation pressure. “Headline inflation and inflation expectations have declined, but core inflation remains too high”. Orrs added that NZ is going through a necessary economic slowdown.
• Swap rates are unchanged.
• RBNZ-dated OIS pricing is broadly steady.
• Today the local calendar sees Q2 PPI data.
• Today the NZ Treasury plans to sell NZ$275mn of the 3.0% Apr-29 bond, NZ$150mn of the 4.25% May-34 bond and NZ$75mn of the 1.75% May-41 bond.