NZGBS: Yields Higher As The BoC Delivers A Surprise Hike

Global yields surged overnight, leading to a 6-10bp cheapening in NZGBs in early local trade. The catalyst for this downward movement was the unexpected rate hike by the BoC, which came just a day after the RBA made a similar decision.

• The BoC's 25bp increase brought the policy rate to 4.75% and marked a significant shift in direction, considering rates were left unchanged at the previous two meetings. The decision was attributed to stronger-than-expected GDP growth in Q1, a recent upturn in housing market activity, persistent excess demand in the economy, and a higher-than-anticipated CPI in April. Prior to the announcement, the market had assigned a 45% probability of a 25bp rate hike.
• After the NY bell, cash US tsys were 8-14bp higher in yield across the major benchmarks with the curve steeper.
• Swap rates are 4-8bp higher with the 2s10s curve steeper and implied swap spreads tighter.
• RBNZ dated OIS pricing is flat to 3bp firmer across meetings with November leading. Terminal rate expectations sit at 5.64%.
• The NZ Government published its Financial Statement for the 10 months ended April 30 showing an operating deficit of NZ$7.02bn, NZ$1.27b wider than projected in the budget.
• The local calendar today also sees Mfg Activity (Q1).
• The NZ Treasury plans to sell NZ$200mn of the 4.50% May-30 bond, NZ$150mn of the 3.50% Apr-33 bond and NZ$50mn of the 2.75% Apr-37 bond tomorrow.