NZGB Bond Programme – What We’ll Be Watching Out For
The NZ Budget is on 30th May and this will accompanied by NZDM releasing an updated bond programme. At the last bond programme update, at the Half-year Economic and Fiscal Update (HYEFU) in December, NZDM forecast $8b of gross NZGB issuance in the upcoming fiscal year (the same level as the current fiscal year – see Table 1).
NZ Rates Outlook - Valuations Stretched
RBNZ cuts to 1.5%, signals a soft easing bias – NZ short-end getting closer to fully-priced
Outlook for Borrowers: Post-May Monetary Policy Statement
The RBNZ reduced the OCR at the May MPS, to 1.5%. The market was pricing around a 33% chance of a rate cut immediately prior to the decision, although a strong majority of economists expected a move. The decision was the first made by the newly-formed Monetary Policy Committee.
A Stock-Take on NZ BEIs – Positive Catalysts Ahead
We have been highlighting the value case for NZ BEI wideners for some time. The interpolated 10 year NZ BEI is barely above 1%, well below headline CPI inflation, the range of core measures of 1.5% to 2.2%, and the RBNZ’s 2% target midpoint..
BNZ Interest Rate Strategy: NZ swap spreads getting stretched – buy NZGB 2027 v swap
NZGBs have underperformed swaps significantly since the start of the month.
Outlook for Borrowers: Post-March OCR Review
At the March OCR Review, the RBNZ surprised the market, and us, by moving to an explicit easing bias. The Bank said the “more likely direction of our next OCR move is down”, citing a weaker global outlook and less momentum in the domestic economy.
RBNZ OCR Review Uber-Dovish; Enter 2s5s Steepeners
The RBNZ surprised the market, and us, by moving to an explicit easing bias at yesterday’s OCR Review. This has generated a significant move lower in NZ rates, with the front-end of the curve leading the charge (see Chart 1). The softer global outlook, and the more pronounced downside risks attached to it, appeared to be the main driver of the RBNZ’s change in policy stance. Readers can see our economics team’s summary of the OCR Review for more detail.
LGFA update: More bond supply but still value in the long-end
Earlier this month, the New Zealand Local Government Funding Agency (LGFA) announced a significant increase to its funding targets for future years. Based on LGFA forecasts, we estimate it will have almost $9.5b in bonds outstanding by Jun-20, almost $1.5b more than previously forecast. LGFA’s revisions to its borrowing forecasts were the largest since its inception in 2012 (see Chart 1).
Have NZ rates gone too far? Pay NZ 5 Year Swap Tactically
After a brief sell-off after the February MPS, NZ rates have returned to near record low levels over the past month.