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NZGBS: Subdued Session After A Robust Post-RBNZ Rally

BONDS

NZGBs ended the day flat to 1bp cheaper, reflecting a subdued local session. However, it has been a robust week for NZGBs, as yields closed 10-20bps lower than Tuesday's closing levels following the RBNZ's dovish shift. The 2/10 curve is approximately 10bps steeper than Tuesday's level.

  • Moreover, NZGBs have outperformed their $-bloc counterparts, with the NZ-US and NZ-AU 10-year yield differentials around 5bps tighter than Tuesday's closing levels.
  • Swap rates closed 1-3bps higher, with the 2s10s curve flatter.
  • RBNZ dated OIS pricing closed flat to 1bp softer across meetings. A cumulative 53bps of easing is priced by year-end from an expected OCR peak of 5.53%.
  • Before Wednesday's decision, the market had attached a 29% chance of a 25bp hike at yesterday’s meeting, with an anticipated terminal OCR of 5.65% (reflecting a 61% probability of a 25bp hike) by the May meeting. A cumulative 40bps of easing by year-end had been factored into the pricing.
  • It is also worth noting that in late December, the market had expected over 100bps of easing by year-end, stemming from an anticipated terminal OCR of 5.53%.
  • Next week, the local calendar sees Terms of Trade data on Monday.
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