NZGBs: Slightly Cheaper; NZGBs Retain Recent Gains As RBNZ Rate Cut Optimism Holds
NZGBs have reversed their way into the red after having held around/above neutral levels earlier on, cheapening modestly as we have worked our way across the session. Cash NZGBs run 2.0-3.5bp cheaper across the curve, bear flattening as 2s have underperformed
Taking stock of matters here, while NZGBs are off their post-RBNZ bests, they currently trade around their richest levels seen in over a year, having headed higher following months of soft economic data, culminating in the RBNZ's mid-Aug rate cut. As it stands, OIS markets are currently pricing in a cumulative ~74bp of rate cuts through to the RBNZ's end-Nov monetary policy meeting
While this is far short of the ~105bp priced in at the beginning of Aug, it continues to point to fully-priced-in expectations for a 25bp and a 50bp rate cut at the remaining two decisions for the year. Note that this still reflects far more aggressive cuts than the RBNZ is forecasting - they see the OCR at ~4.9% by end-'24, implying at least one more 25bp rate cut (see page 51 of RBNZ's Aug MPS here)
ICYMI, this week's otherwise usual round of NZGB auctions has been cancelled owing to the upcoming sale of the new NZGB May-36 bond. The Treasury is expected to issue at least ~NZ$3bn of the line, to be capped at NZ$6bn, with initial price guidance being ~7-11bp over that of the NZGB May-35 bond. The issue is expected to be priced today (20 Aug)
The NZ trade balance for Jul flipped back into a deficit, with a rebound in imports from June contributing the most to that reversal. On a Y/Y basis, exports rose by 14.0% from Jul '23, while imports increased by a more modest 8.5%. Of note here, outbound shipments of dairy products (+11%) contributed the most to growth in exports, adding to a strong surge in fruit exports (+28%) as well (StatsNZ link here)
- Jul Trade Balance NZ$963mn; Jun revised +NZ$585mn, was +NZ699mn
- Jul Exports NZ$6.15bn; Jun revised NZ$6.04bn, was NZ$6.17bn
- Jul Imports NZ$7.11bn; Jun revised NZ$5.45bn, was NZ$5.47bn
REINZ released its monthly property report for Jul, titling their update "Green shoots appear in New Zealand’s property market". Of note, REINZ highlighted that there has been a "new wave of buyer activity not typically seen in late winter". The total number of properties sold in NZ has risen strongly on a Y/Y basis ahead of the "spring selling season", while seasonally adjusted sales was also said to be reflecting "a market performing above anticipated levels". While prices fell on a Y/Y basis - and sales volumes were observed to be "lower than average", REINZ said that "sentiment is beginning to change", aided by the decline in interest rates in July. The RBNZ's recent cut to the OCR - and "strong signals of more reductions to come, will bring relief to households and will provide some confidence to buyers to act soon" (REINZ link here)
NZ Finance Minister Nicola Willis was on the wires a little earlier, speaking on the recommendations from the Commerce Commission re: banking. In essence she said that she shares the "vision" for a "stronger, more disruptive Kiwibank", which should get the "growth capital it needs to become a 'maverick' that exerts real competitive pressure on the Big 4"
The Commission's report said that the RBNZ should place greater emphasis on competition - a recommendation that Willis said that she would take up, with a new Financial Policy Remit expected to be released before Dec '24. The Remit will "make clear the Government's expectation that the Reserve Bank, in its policies and actions, supports a more competitive banking sector".
In all, there are several components within the Commission's report that covers upcoming decisions by the RBNZ. While these developments understandably do not cover monetary policy, they are expected to impact long-term productivity and growth, which may factor into monetary policy considerations further out.
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