RBNZ Triggers Hawkish Repricing As It Looks To Fend Off Inflation

The major cash NZGBs finished Wednesday’s session 2-20bp cheaper, with the front end leading the weakness in the wake of the latest RBNZ decision. Swap rates also shunted higher, with swap spreads wider across the term structure. The 2-/10-Year swap curve moved 15bp further into inverted territory vs. levels seen late Tuesday.

• Also note that the OCR now sits above the 10-Year NZGB yield, just.
• To recap, the final RBNZ decision of ’22 saw the Bank deliver the widely expected 75bp OCR hike. Its continued, almost singular, focus on combatting elevated inflation and inflation expectations, punctuated by confirmation that the Bank deliberated re: delivering a 100bp hike, along with a notable shift higher in the projected OCR track, weighed on NZGBs.
• The RBNZ now expects the OCR to peak at 5.50% in ’23 (up from the previous peak of 4.10%). Market pricing adjusted accordingly, with a peak cash rate of just under 5.50% priced into the RBNZ dated OIS strip.
• ANZ provided the most aggressive sell-side call that we have seen, looking for a peak OCR of 5.75%.
• Looking ahead, the weekly round of NZGB auctions headline domestic matters on Thursday.