NZGBS: Some Profit-Taking After Strong Post-RBNZ Rally, New May-36 Bond Priced Tomorrow

NZGBs closed on a weak note, with benchmark yields 4bps higher. NZ Treasury’s announcement of the launch of a new May 2036 nominal bond possibly weighed on the market. The issue will be priced tomorrow with NZ treasury expecting to issue at least NZ$3bn.

• Today's price movement also likely reflects profit-taking after the strong post-RBNZ decision rally. Nevertheless, NZGBs remain 5-21bps richer, with the 2/10 curve 16bps steeper.
• NZGBs have also underperformed their $-bloc counterparts, with the NZ-US 6bps wider at +29bps.
• The AU-NZ 10-year yield differential is -4bps today, now standing at -24bps compared to the recent high of -5bps in late July.
• The recent move lower in the 10-year yield differential coincided with a move lower in the AU-NZ 1Y3M spread leading up to the RBA’s August policy meeting. However, this move has reversed, with the AU-NZ 1Y3M spread now approaching cyclical highs. Interestingly, the increase in the 1Y3M spread has not been reflected in the AU-NZ 10-year yield differential.
• Swap rates closed 3-5bps higher.
• RBNZ dated OIS pricing closed 4-7bps firmer across meetings. A cumulative 73bps of easing is priced by year-end.
• The local calendar will see REINZ House Sales and Trade Balance data tomorrow and Q2 Retail Sales Ex Inflation on Friday. Also, RBNZ Deputy Hawkesby will speak tomorrow.