NZGBS: Yields Higher Heading Into RBNZ Meeting

NZGBS open 6-8bp higher with the curve 1bp steeper as U.S. Tsys trade heavy after PMI and Philly Fed data come in on the strong side. NZ/US 10-year yield differential narrows 4bp.

• Swap rates, tracking bonds, are 6bp higher.
• With the RBNZ policy decision today, OIS has settled at ~46bp of tightening for the event, just shy of the 50bp consensus call from the BBG economist survey. The market will also be attuned to any changes in the RBNZ’s projections, particularly after yesterday’s outsized moves sparked by NZ Treasury comments on RBNZ policy. NZ government officials/bodies have pushed back against a ‘no hike’ option today and suggested a ‘higher for longer’ path for interest rates due to the inflationary impact of Cyclone Gabrielle and the resultant rebuild. Terminal OCR expectations moved to just below 5.40% and November pricing closed 12bp higher, which is where we operate today.
• The monthly NZ trade deficit widened in Jan.
• Across the Tasman, Australia will release Q4 WPI data. With the RBA having recently flagged its concerns about rising inflationary pressures in the services sector, today’s data has the potential to be a market mover.
• NZDM announced plans to offer NZ$2bn in NZGBs in March, including a new May 2030 bond (via syndication).