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NZGBS: Yields Sharply Higher After Q1 CPI Signals Sticky Domestic Inflation

BONDS

NZGBs closed just off the worst levels of the session, with yields 6-7bps higher. The key event of today’s session was the release of Q1 CPI.

  • While Q1 CPI printed in line with consensus at 0.6% q/q and 4.0% y/y, the continued stickiness of domestically driven non-tradeables inflation is likely to keep rates on hold for some time, especially as we’ve seen most of the disinflationary impact from tradeables.
  • The 10-year NZGB slightly underperformed its $-bloc counterparts, with the NZ-US and NZ-AU yield differentials 2bps and 1bp wider on the day.
  • Nevertheless, NZ-US 10-year yield differential at +26bps sits near its tightest level since mid-2021. Before the recent narrowing, this differential had oscillated between +30 and +80bps since late 2022.
  • Swap rates closed 3bps higher than pre-CPI levels and 5bps higher on the day.
  • RBNZ dated OIS pricing closed is 3-9bps firmer after the data across meetings, with late-24/early-25 leading. A cumulative 30bps of easing is priced by year-end versus 38bps before the data.
  • Tomorrow, the local calendar is empty apart from the NZ Treasury’s planned sale of NZ$275mn of the 4.5% May-30 bond, NZ$175mn of the 2.0% May-32 bond, NZ$50mn of the 2.75% May-51 bond and NZ$30mn of the 3% Sep-30 Inflation-Linked bond.
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