NZGBS: Weaker Fuelled By Hike & Budget Deficits Fears

NZGBs closed at session cheaps, 8-11bp weaker, as the market digests Westpac’s 6.0% OCR forecast and the prospect of a worse-than-expected deficit when the budget is handed down on Thursday. NZGBs underperformed the $-Bloc with NZ/US and NZ/AU 10-year yield differentials closing respectively 6bp and 3bp higher.

• Swap rates closed 5-9bp higher with the 2s10s curve 4bp flatter.
• RBNZ dated OIS closed 6-11bp firmer for meetings beyond May. The May meeting has 25bp of tightening priced.
• Non-Resident Bond Holdings data showed an increase from 60.3% in March to 62.1% in April, its highest level since 2017.
• The local calendar is light again tomorrow ahead of the Budget on Thursday. The government has signalled that Budget 2023 will focus on alleviating cost-of-living pressures, fast-tracking recovery from Cyclone Gabrielle, and maintaining public services, but not much else. The operating balance is expected to reach surplus in 2025/26, one year later than previously flagged.
• In Australia, the Wage Price Index is scheduled for release tomorrow with the market closely watching to see if last quarter’s soft outcome is reversed.
• Until then, all eyes will be on global bonds as they navigate Q1 GDP in the Euro Area and April Retail Sales in the US.