NZGBS: Slightly Richer, US Tsys Finish The Week Strongly

In local morning trade, NZGBs are 1bp richer after US tsys finished last week with a bull-steepener despite an initial negative reaction to higher-than-expected PPI data.

• US tsy yields ended with the 2-year down 6bps to 4.45% and the 10-year 3bps lower at 4.18%. These were the lowest levels since early March. The curve steepened to -27bps from -30bps.
• PPI increased 0.2% m/m, and core prices rose by 0.4%, above the 0.2% median forecast. The pickup in core PPI was driven by a jump in retail and wholesale margins and is unlikely to be sustained. Also, most of the inputs for the core PCE deflator support forecasts for a tame June print, well below the Fed’s June FOMC forecast.
• The dovish tone set by Chair Powell's testimony and the cool CPI earlier in the week prevailed as rate-cut bets were boosted. The market is pricing 63bps of Fed rate cut this year, up from 50bps a week ago.
• The Performance Services Index falls to 40.2.
• REINZ House Sales fell 25.6% from a year earlier.
• Swap rates are 2bps lower.
• RBNZ dated OIS pricing is 4-5bps softer for late-2024/2025 meetings. A cumulative 65bps of easing is priced by year-end.
• On Wednesday, the local calendar will see the all-important Q2 CPI data.