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NZGBS: Yields Sharply Higher Adding To Post-Budget Sell-Off


NZGBs opened on a weaker note as they continued to absorb the effects of yesterday's budget. Weaker US tsys in NY trade also contributed to the pressure. The decline in US tsys was driven by optimism surrounding a resolution to the debt ceiling issue and hawkish comments from the Dallas Fed's Logan.

  • NZGBs opened 11bp cheaper, bringing the total post-budget movement to 23bp for the 2-year benchmark and 16bp for the 10-year.
  • The Budget showed a worse-than-expected deterioration in the Government’s books with spending less restrained than anticipated. The Government still meets its fiscal targets, however, with the books returning to surplus in the out years and net debt peaking well below 30% of GDP.
  • For the RBNZ, the Budget takes a more expansionary approach compared to the Half-Year Update with the fiscal impulse moving into positive territory next year, which could fuel inflation.
  • For financial markets, the bond programme is larger than expected over the forecast period. The forecast 2023/24 bond programme increased to NZ$34bn, NZ$4bn higher than the Half-Year Update. The forecast increase out to 2026/27 was NZ$20bn.
  • Swaps are 11bp higher.
  • RBNZ dated OIS opened 3-9bp firmer across meetings with 34bp of tightening priced for next week’s meeting.
  • The local calendar sees the release of April trade data.

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