NZGBS: Twist Flattens As Short-End Unwinds Gains

NZGBs closed stronger but off session bests, particularly for the short end. 2/10 NZGB cash curve steepened 6bp on the day with 2-year and 10-year benchmark yields respectively flat and 6bp lower. The 2-year yield was down as much as 8bp early. Without a domestic catalyst, NZGBs moved away from bests as US tsys cheapened in Asia-Pac trade.

• 2s10s swap curve twist flattens with rates 1bp higher to 3bp lower and implied long-end swap spreads wider.
• RBNZ dated OIS closed flat to 3bp firmer across meetings. May meeting pricing remained at 22bp of tightening.
• The Antipodean calendar sees the RBA Policy Decision tomorrow, with no change expected, ahead of the release of the Q1 Labour Market Report on Wednesday. BBG consensus expects some cooling in tight labour market conditions. Q1 wage growth is however expected to remain at Q4’s strong pace.
• Ahead of the release of the 2023 Financial Stability Report (Wed), the RBNZ noted in an article that NZ lending is generally at variable or short-term fixed rates, which means the potential losses for banks from interest rate movements are smaller.
• Ahead of the RBA decision, the local market will be guided by US tsys through the release of US ISM Manufacturing PMI later today.