NZGBS: Weaker, At Cheaps, RBNZ Policy Decision Tomorrow

NZGBs ended the session on a low note with the 2-year and 10-year benchmark yields respectively rising by 8bp and 6bp, ahead of tomorrow’s RBNZ policy meeting.

• The RBNZ will review revised projections that are expected to indicate stronger economic growth, sustained inflation, and a lower peak in the unemployment rate. It is likely that the projection for a recession in 2023 will be removed due to increased demand resulting from reconstruction spending and a surge in migration.
• A Bloomberg survey of economists revealed a median expectation of a 25bp hike to 5.50% from the RBNZ tomorrow. 18/21 economists expected a 25bp increase with ASB, TD Securities and UBS expecting a 50bp increase.
• RBNZ dated OIS pricing is 4-14bp firmer across meetings. 37bp of tightening is priced for tomorrow’s RBNZ meeting. Terminal rate expectations are at a new cycle high of 5.94%.
• Pricing has shunted firmer over recent days, following a more stimulatory than expected NZ budget. With a fiscal impulse moving into positive territory next year, pricing has firmed 9-38bp across meetings post-budget with early ’24 leading.
• Swap rates are 9-11bp higher with implied swap spreads 2-3bp wider.
• The local calendar sees the release of Retail Sales Ex-Inflation ahead of the RBNZ policy decision tomorrow.