NZGBS: Twist-Flattening Of Curve Ahead Of US PPI & RBNZ Policy Decision

NZGBs closed around session bests. The 2/10 curve has twist-flattened, with benchmark yields 1bp higher to 2bps lower.

• The long end was supported by a slight richening in cash US tsys in today’s Asia-Pac session. Tuesday’s focus in the US will be on US PPI data and Richmond Fed Bostic. PPI data will be scrutinised for categories that feed through to the Fed’s preferred inflation gauge, the personal consumption expenditures price index.
• The short end, however, was more focused on tomorrow’s RBNZ Policy Meeting.
• We expect the RBNZ to discuss a rate cut at the August meeting but opt to keep monetary policy unchanged. Nevertheless, we expect the bank to communicate its intention to ease before year-end through its statement, press conference and updated staff forecasts. It is a close call with 9 of 23 forecasters on Bloomberg expecting a cut. See here for the full preview.
• Swap rates closed 2bps lower to 2bps higher, with the 2s10s curve flatter.
• RBNZ dated OIS pricing is 1-2bps firmer across meetings today. The market attaches a 58% chance of a 25bp cut this week versus 69% on Friday and 43% before RBNZ inflation expectations data last week. A cumulative 47bps of easing is priced for the October meeting, with 87bps of cuts by year-end.