BONDS: NZGBS: Closed Richer Despite GDP Beat, Supply Sees Solid Demand

NZGBs closed showing a twist-steepener, with benchmark yields 2bps lower to 1bp higher. 

• With the local market closed at the time of the RBA’s 25bp rate cut, any spillover effects will have to wait until tomorrow morning. However, the initial reaction has been minimal so far.
• Swap rates also closed mixed, with rates 2bps lower to 3bps higher. The 2s10s curve closed steeper.
• Cash US tsys are 1-4bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s holiday.
• Tomorrow, the local calendar will see the RBNZ Policy Decision. The RBNZ decision is widely expected to cut rates 50bp again to 3.75%. Revised staff forecasts will also be published.
• All 22 analysts surveyed by Bloomberg are forecasting a 50bp rate cut and the RBNZ shadow board is recommending 50bp of easing.
• RBNZ dated OIS pricing closed slightly softer. 49bps of easing is priced for February, with a cumulative 113bps by November 2025.
• Notably, OIS pricing is 2–17bps firmer than pre-Q4 Labour Market data levels from February 4.
• On Thursday, the NZ Treasury plans to sell NZ$250mn of the 4.50% Apr-27 bond, NZ$200mn of the 4.25% May-34 bond and NZ$50mn of the 1.75% May-41 bond.

AUD/USD is holding near 0.6350 in latest dealings. We got to highs of 0.6368 post the RBA decision, as the central bank cut rates by 25bps as expected, but then then the accompanying statement was cautious around further cuts. Pre RBA levels, we were just under 0.6340. 

• For AUD techs, not much has changed. The pair has cleared 0.6331, the Jan 24 high and a key short-term resistance. The breach highlights a stronger reversal and opens 0.6414, a Fibonacci retracement. Note that MA studies remain in a bear-mode position.
• Broader USD sentiment is positive, which may be limiting AUD upside. The BBDXY index remains in positive territory, up close to 0.20%. The A$ is outperforming on crosses though, up to 1.1120 for the AUD/NZD cross (+0.35%). AUD/JPY is up around 0.25%, the pair last near 96.50/55.
• AU-US 2yr swap spreads are little changed, last near -41bps. We ended Monday's session at -40bps. We are in from recent wides though of beyond -50bps from last week.
• Options markets aren't expecting AUD fireworks in the near term. The implied overnight range in AUD/USD is 0.6306-0.6392, with a 81.4% probability. This is little changed from pre-RBA levels.
• Coming up in a little over 30mins we have RBA Governor Bullock's press conference. 

ACGBs (YM -1.0 & XM -1.5) are slightly weaker after the RBA Decision. To summarise the statement:

• The RBA Board lowered the cash rate target to 4.10% as inflation continues to ease faster than expected. Underlying inflation fell to 3.2% in Q4 2023, with subdued private demand and easing wage pressures providing confidence in inflation’s downward trajectory. However, labour market data remains strong, suggesting ongoing tightness.
• The Board remains cautious about further policy easing amid domestic and global uncertainties. While inflation is expected to return to target, risks remain.
• The Board will continue to monitor economic conditions and remains committed to ensuring inflation sustainably reaches the 2–3% target range while maintaining price stability and full employment.
• Cash US tsys are 1-4bps cheaper, with a steepening bias, in today’s Asia-Pac session after yesterday’s holiday.
• Cash ACGBs are little changed on the day with the AU-US 10-year yield differential at -5bps.
• Swap rates are flat to 1bp higher on the day.
• The bills strip little changed.
• RBA-dated OIS pricing is slightly firmer after the RBA Decision across meetings today.