NZGBS: Subdued Open Despite Weaker U.S. Tsy Lead

NZGBs are ~2.5bp cheaper across the curve given the weaker lead from U.S. Tsys. After the higher-than-expected PCE print threw weight behind the recent refrain of Fed speakers that there was 'more work to do', U.S Tsys softened ahead of the weekend, the curve flattened back towards inverted extremes and the 2-year yield pushed to a new cycle high. Cash NZGBs’ subdued start to trading, and outperformance Vs. the U.S., appears to be a carryover from Friday’s selling fatigue-induced reversal that came after a 3-day weakening centred on the RBNZ policy meeting. At Friday’s session cheaps, the cumulative rise in 2-year and 10-year yields for the week had topped 35bp.

• Swap rates open 4bp higher, implying a narrowing in swap spreads, with the 2s10s curve unchanged.
• RBNZ dated OIS open flat to 2bp firmer across meetings with May leading. April meeting pricing holds at 39bp of tightening with terminal OCR (Aug-23) at 5.46%.
• After Friday’s pause, the NZGB market is likely to come under further pressure unless the heavy Antipodean data slate provides an offsetting impetus.
• Today see NZ Q4 Retail Sales followed by the release of Australian Q4 Company Profits and Q4 Inventories.