NZGBS: Weaker, But Off Cheaps, Outperforms $-Bloc

NZGBs closed with a twist steepening of the 2/10 curve. Benchmarks were 1bp richer to 3bp cheaper. The short-end's move away from early session cheaps was aided by a soft Manufacturing PMI report that showed the index falling to 46.3 in July from a revised 47.4 in June. This was the lowest level since the gauge slumped to 39.0 in August 2021 during the Covid-19 pandemic. The long-term average is 52.9.

• The intraday short-end strengthening stood in stark contrast to the observed cheapening in US tsys and ACGBs, notably. Consequently, the yield differentials for the NZ-US and NZ-AU 10-year yield differentials contracted by 4bp.
• The swap curve also twist steepened with rates 2bp lower to 5bp higher.
• RBNZ dated OIS pricing closed 1-3bp softer across meetings.
• Food prices fell 0.5% m/m in July, with fruit and vegetable prices -4.1% m/m.
• Next week, the domestic calendar sees the Performance Services Index and Net Migration data on Monday, followed by REINZ House Prices on Tuesday. These precede the RBNZ Policy Decision on Wednesday. Bloomberg consensus is unanimous in expecting the OCR to be kept at 5.50%. The OIS market currently attaches an 8% chance of a 25bp hike.