STIR: $-Bloc Year-End Pricing Little Changed Over Past Week

After of today’s RBNZ policy decision, RBNZ-dated OIS pricing is slightly firmer across meetings. 

• In a unanimous decision, the MPC decided to hike rates 25bp to 2.5%, in line with Bloomberg consensus - first tightening since May 2023. It decided that it was “appropriate” to remove some accommodation to return inflation to the 2% band mid-point and prevent further easing in financial conditions.
• Neutral is estimated to be around 3%. Its tone remained cautious though given ongoing elevated uncertainty and while further tightening is likely, it kept its options open regarding timing.
• 21bps of tightening had been priced for today, while February 2027 had been assigned 74bps. 75bps of tightening, including today’s hike, is currently priced.
• Interestingly, pricing remains 1-18bps softer across meetings beyond September 2026 compared with levels prevailing before the May 27 policy decision.

Figure 1: RBNZ-Dated OIS – Current Vs. Pre-RBNZ

Source: Bloomberg Finance LP / MNI

In a unanimous decision, the MPC decided to hike rates 25bp to 2.5%, in line with Bloomberg consensus - first tightening since May 2023. It decided that it was “appropriate” to remove some accommodation to return inflation to the 2% band mid-point and prevent further easing in financial conditions. Neutral is estimated to be around 3%. Its tone remained cautious though given ongoing elevated uncertainty and while further tightening is likely, it kept its options open regarding timing.

• It was clear that today’s tightening was to return inflation to the band mid-point with the title of the press release “OCR increased to 2.50% to return inflation to 2%”.
• There was some speculation that the recent decline in fuel prices may allow the MPC to hold and wait for Q2 CPI data. It did note the fall but with its concern that the impact of the initial shock could still be felt in the medium-term and the overall effect is uncertain.
• The statement was cautious around the 25bp move to avoid “unnecessary economic instability” suggesting that a larger move would have been harmful to the nascent recovery. Also, the “sooner and by more” tightening message from May was removed and it kept its options open regarding the timing of further hikes which will be highly data dependent.
• It warned that high inflation also weighs on growth and reducing it will boost purchasing power and “support a sustained recovery”.
• The weaker NZD was acknowledged and its potential to add to inflationary pressures.

The latest ACGB Mar-36 auction saw solid demand, with the weighted average yield coming in 0.70bps through prevailing mid-yields, according to Yieldbroker, continuing the trend of firm pricing at recent ACGB auctions.

• However, the cover ratio increased to 4.5500 from 3.8620x.
• As highlighted in our preview, bidding at today’s auction faced an outright yield that was 10bps below the level of the previous auction and ~20bps below its cycle high.
• However, the 3/10 yield curve had steepened versus the previous auction, continuing its move away from the recent low, the flattest since mid-2024.
• There has been a slight cheapening in XM and the cash line in post-auction trading.