NZGBS: Yields Higher After U.S. CPI

NZGBs have opened 4-5bp higher in yield following the lead set by U.S. Tsys, which reacted negatively to a more limited moderation in annual inflation (relative to expectations) and hawkish Fed-speak.

• By contrast, NZ swaps have opened mixed, with the curve 10bp steeper. Swap rates are 1-2bp lower at the short-end but higher further out, led by the long-end. 5-year swaps are 4bp higher, with the longer end ~7.5bp higher.
• Little movement in RBNZ-dated OIS this morning. OIS contracts responded to signs of moderation in the RBNZ’s Survey of 2-year inflation expectations yesterday by reducing the amount of tightening priced for this month’s meeting to less than 60bp, where we still reside at typing, while terminal OCR ricing has nudged higher in lieu of U.S. CPI, showing just below 5.45%.
• NZ is still coming to terms with the social as well as the economic costs of the recent floods and cyclone.
• For the markets focus will likely remain on the fall-out from the U.S. CPI print and Fed-speak. Attention will also be given to any trans-Tasman impetus stemming from RBA Governor Lowe’s parliamentary testimony.