NZGBS: Stronger Ahead Of RBNZ

NZGBs opened 2-3bp stronger as the local market plays catch-up to the Australian market’s bullish response to the RBA decision yesterday (the local market was closed) and US Tsy strength in NY trade after weaker-than-expected JOLT job openings. Cash NZGBs have underperformed the $-Bloc with the NZ/US and NZ/AU (using XM) 10-year yield differentials respectively +6bp and +3bp.

• Swaps are 4-6bp richer, implying tighter swap spreads.
• The local highlight today will be the RBNZ Policy Decision (0300 BST) with both market pricing and BBG consensus calling for a 25bp hike.
• While impacted by global developments in March, NZ STIR has basically maintained pricing of a 25bp hike today through the eye of the banking crisis storm. Moreover, it has done it despite news that the NZ economy wasn’t running as strongly as the RBNZ was expecting at the end of 2022.
• Regarding forward guidance, it is expected that the RBNZ will emphasize the possibility of additional rate hikes to reach its 1-3% inflation target, despite acknowledging that monetary policy is currently in "contractionary territory".
• The possibility of a 25bp hike in May is a topic of debate among economists. RBNZ dated OIS has an additional 25bp of tightening (assuming a 25bp hike today) priced by July.