NZGBS: Stronger But off Bests, Eyeing US Tsys

NZGBs closed 2-4bp richer but off session bests as US Tsys come under modest pressure in Asia-Pac trade as local participants faded Monday’s ISM-induced rally. Without any meaningful macro news flow, a shift in focus to the inflationary impact of higher oil prices is one possible explanation. NZGBs underperformed US Tsys with the NZ/US 10-year yield differentials +5bp.

• Swap rates closed flat to 1bp lower, implying a wider long-end swap spread.
• Ahead of the RBNZ policy decision tomorrow, RBNZ dated OIS pricing closed 1-2bp softer across meetings. 27bp of tightening is priced for tomorrow’s meeting with terminal OCR expectations at 5.29%.
• On the local data front, the NZIER Quarterly Survey of Business Opinion showed a slight improvement in confidence (66% of firms expect the economy to deteriorate versus 70% previously). A net 69% of firms raised prices in Q1 with a net 61% expecting to raise prices in Q2. Market pricing was little changed after the data.
• Given that the local market has closed ahead of the RBA rates decision, tomorrow's opening is expected to reflect not only the Australian market's response to the announcement but also any fluctuations in the US Tsys overnight.