BONDS: NZGBS: Closed With A Bear Steepener As Short End Reverses Losses

NZGBs closed 4-9bps cheaper, with a flatter curve.

• The RBNZ cut rates 25bp to 3.25% following a vote that included an option to leave rates unchanged. The vote wasn’t unanimous, with one dissenter. Despite this, the OCR path was revised down to show a trough 25bp below February’s at 2.85%.
• In his first press conference as Governor, Hawkesby noted that this was the first vote on the direction of rates in two years—something that typically occurs at inflection points and highlights the current high level of uncertainty. With policy rates now in the “neutral zone,” he emphasised that the MPC is positioned to “respond to developments as they occur,” indicating that further easing is not guaranteed and future moves will depend on incoming data and the evolving outlook.
• Swap rates closed 7-10bps higher.
• RBNZ-dated OIS pricing closed 6-10bps firmer across meetings versus pre-RBNZ levels. Markets had fully priced in today’s 25bp cut ahead of the decision. A total of 32bps of easing is now expected by November 2025.
• Tomorrow, the local calendar will see the RBNZ Governor in front of the Parliament Select Committee on MPS. ANZ Business Confidence is also scheduled for release.
• The NZ Treasury also plans to sell NZ$225mn of the 4.50% May-30 bond and NZ$225mn of the 4.25% May-36 bond.

The Asia-Pac USD/JPY range has been 143.85 - 144.77, Asia is currently trading around 144.35. USD/JPY has had a very whippy session with a big spike seen into the Japanese Fix, it drifted lower from there but bounced again in our afternoon to make a new high around 144.77.

• " Regarding a recent spike in super-long yields on government debt, market participants cited the unwinding of existing positions and a drop in demand, Bank of Japan Governor Kazuo Ueda says. Moves in short- and long-term yields tend to affect the economy more than those in super long-term yields. Will monitor market developments closely along with their economic impact by keeping in mind that major moves in super long-term yields can affect shorter-term yields." (per BBG)
•  "A Japanese government advisory panel is urging authorities to intensify fiscal consolidation efforts, according to Bloomberg News on Tuesday, citing a proposal submitted to Finance Minister Katsunobu Kato on the same day. This comes as the Bank of Japan's ongoing monetary tightening increases the risk of higher debt-servicing costs for the nation, said the news wire." (per MTN)
• (Bloomberg) - “The JGB 40-year sale has come in weak after all. The bid-to-cover dropped back to 2.21, the weakest since July. And the yield of 3.135% is above the poll estimate of 3.085%. That global bond bounce may fade.”
• This move yesterday would have caught out a few shorts, but we are approaching resistance back towards 145.00/146.00 which should see some sellers emerge. 
• It is worth noting though we are heading into the corporate month-end and this could see some USD demand over the next day or 2 making it uncomfortable for the considerable JPY longs that have been built up.
• The market has been very confident of a move lower in USD/JPY but with positioning quite large now the risk of pullbacks does increase. Resistance is now back towards 145.00/146.00 area first up. 

• Options : Close significant option expiries for NY cut, based on DTCC data: 145.00($2.14b), 143.00($1.98b), 144.00($1.67b). Upcoming Close Strikes : 143.00($3.34b May 30), 140.00($2.78b May 30).

  Fig 1 : USD/JPY Spot Daily Chart

  

  Source: MNI - Market News/Bloomberg

RBNZ-dated OIS pricing closed 6-10bps firmer across meetings versus pre-RBNZ levels.

• Governor Hawkesby held his first press conference and noted that the vote on the direction of rates was the first in two years and usually occurs at inflexion points and also reflects the high degree of uncertainty at the moment. With rates now in the “neutral zone”, the MPC “can now respond to developments as they occur”, thus further easing isn’t a given and future decisions will remain data and outlook dependent.
• Markets had fully priced in today’s 25bp cut ahead of the decision, with a total of 64bps of easing expected by November 2025. That has now adjusted to 57bps, inclusive of today’s move.

Figure 1: RBNZ Dated OIS Today vs. Pre-RBNZ Levels (%)

Source: MNI - Market News / Bloomberg