NZGBS: Weaker Led by 2-Year As RBNZ Surprises

The NZGB cash curve had twist flattened 18bp by the close with the 2-year benchmark yield 12bp higher and the 10-year 6bp lower after the RBNZ surprised the market with a 50bp rate hike. The 10-year benchmark yield had spiked 12bp higher on the decision but quickly recouped those losses. At the close, the cash 2/10 curve was -69bp, the most inverted since 2009.

• The 2s10s swap curve closed 12bp flatter at -94bp, a new low for this cycle and the most inverted since 2008.
• RBNZ dated OIS shunted firmer with pricing +18-24bp across meetings with 20bp of tightening priced for May. Terminal OCR expectations increased 21bp to 5.49%.
• The market pricing and BBG consensus had been expecting a stepped-down 25bp increase today after the 50bp hike in February. The bank had considered both a 25bp and a 50bp hike at today’s meeting but believed that a larger tightening was needed to return inflation to its 1-3% target band.
• The RBNZ revised up its estimates of the inflationary impact of the cyclone rebuild and noted upside risks to the fiscal outlook.
• Further afield, the global calendar is relatively light today with the highlights being European PMIs and German Factory Orders ahead of US ISM Services.