NZGBS: Softer Retail Sales Fails To Change The Tone

NZGBs close 3-4bp weaker despite softer than expected Q4 real retail sales suggesting an easing in demand. The inability of the data to sustain a bid likely reflected the cross currents of base effects and some remaining Covid trends. RBNZ’s Chief Economist Conway was also on the wires touting a familiar message on inflation. He did however “see some signs we are at an inflation turning point”, but with “a lot of uncertainty”.

• Today’s move in NZGBs saw the 2-year yield push to a post-RBNZ meeting high (37bp above last Monday’s close) and the 10-year retrace around half of Friday afternoon’s 9bp rally. On a relative basis, NZGBs were slightly stronger versus Australia after last week’s 20bp+ underperformance across the curve. On Friday, the AU-NZ 10-year cash yield differential narrowed to within 3bp of its mid-December low of -83bp, representing a 40bp round-trip since the start of the year.
• Swap rates close 5-6bp higher, implying a widening in swap spreads.
• RBNZ dated OIS closed 2 to 4bp firmer across meetings beyond April with November leading. April meeting pricing held at 39bp of tightening with terminal OCR (Aug-23) at 5.49% (the RBNZ’s peak forecast).
• Without a domestic impetus, the market will turn to U.S. Tsys for guidance ahead of the release of monthly Building Approvals data tomorrow. Australia also releases monthly Private Sector Credit data and further quarterly partials.