NZ Budget expected to bring "a clear net fiscal stimulus" and ratings agencies likely to "make positive noises"

By Doug Steel

US Treasury yields were little changed ahead of the Fed minutes, trading in a tight range. Post-Fed yields have fallen around 2 to 3 basis points across the curve. The US 10-year Treasury yield is down a couple of basis points to just under 2.26%.

The local swap curve generally rose and steepened yesterday, echoing moves in the previous offshore session.

The NZ 2-year swap yield continues to have little pulse, anchored by a dovish RBNZ, closing little changed yesterday at 2.235%. Meanwhile, NZ 5-year swap edged 2bp higher to just under 2.78% and 10-year swap pushed up 3bp to around 3.27%.

Some downward bias looks in store today, given the drift lower in offshore yields after the Fed minutes.

The UK’s Q1 GDP and oil-producers meeting are the most notable events on today’s sparse international calendar.

Locally, attention, at least politically, will be on NZ’s Budget (due 2pm). But we are not expecting material market movement as a result of today’s Budget, although we do anticipate policies to represent a clear net fiscal stimulus (which the RBNZ would not have been able to include in its May Monetary Policy Statement, it’s worth noting).

Even so, there will still likely be increasing core operating surpluses in the projections, to a moderate degree. And enough cash discipline over the medium term to keep net Crown debt, as a per cent of GDP, moderating in line with new extended target of 10 to 15% of GDP by 2025. This will keep the debt programme limited to what the Debt Management Office prefers as a gross amount, to maintain liquidity and the like. New Zealand’s fiscal story will thus continue to stand out on the global stage. We would thus expect the rating agencies to make positive noises about New Zealand’s Budget.

Doug Steel is a senior economist at BNZ Markets. All its research is available here.