By Kymberly Martin
NZ swaps closed down 1-2bps across the curve. NZ bond yields closed down 2-4bps but notably underperformed their AU counterparts.
The short-end of the NZ curve continues to price around a 30% chance of a RBNZ hike in January next year, fully pricing a March hike. It sees almost 125bps of hikes by the end of the year. That is consistent with our own view, although we see the risks tilted toward the OCR ending the year higher than 3.75%.
NZ 10-year bonds closed at 2.83% yesterday.
NZGBs should be in the spotlight today as the Government will issue its budget update and HYEFU. In conjunction with this, the DMO will likely confirm a more constrained NZGB issuance program in 2H of the fiscal year.
This should help support NZGBs.
The DMO’s projected issuance in inflation indexed bonds relative to nominal bonds will also be noted with interest after recent soft IIB tenders.
Overnight, in the backdrop of fairly buoyant equity markets, US 10-year bonds continued to paddle sideways between 2.84% and 2.86%. The market is likely reticent to significantly adjust its positioning as it heads into tomorrow night’s US FOMC meeting.
Today, aside from the HYEFU, the local focus will be on the release of the RBA’s December minutes and the AU Government’s MYEFO.
The HYEFU and MYEFO may highlight the contrasting fiscal outlooks on either side of the Tasman, and the pressures for ACGB issuance at a time that NZGB issuance appears relatively contained.
The market currently prices more than a 60% chance the RBA will cut rates again by 3Q next year. We see this as a probable outcome, given expectation of further deterioration in areas such as the AU labour market.
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