New Zealand 10-year Treasury bond yields rally 4.0% on RBNZ-led action

• New Zealand’s benchmark Treasury yields rally, equities drop on RBNZ-inspired move.
• RBNZ matches market forecasts of announcing 0.75% rate hike, unveiled recession fears.
• NZ 10-year Treasury yields refresh one-week high, NZX 50 declines 0.70% intraday.
• Speech from RBNZ Governor Adrian Orr will be important for fresh clues.

Markets in New Zealand (NZ) portray a stark reaction to the Reserve Bank of New Zealand’s (RBNZ) Interest Rate Decisions on early Wednesday.

That said, the RBNZ matched market forecasts while announcing 75 basis points (bps) of a rate hike during its updates to convey the tenth interest rate lift. It should be noted, however, that downbeat economic forecasts suggesting recession in 2023 and sour comments from New Zealand Finance Minister Grant Robertson, suggesting a recession is on the doorstep, also played their roles.

While portraying the moves, NZ 10-year Treasury yields jump 3.87% intraday to 4.30% whereas New Zealand’s benchmark equity index NZX50 dropped 0.70% intraday by the press time.

In addition to the actual 75 bps rate hike, the tenth in the line, the statements from the monetary policy report suggesting that the policymakers also considered a 100 bps rate hike, before announcing the latest move, seemed to portray the utter hawkish move by the RBNZ. On the same line is the RBNZ’s prediction of the Official Cash Rate (OCR) peak of 5.5%, versus the current level of 4.25%.

That said, traders from Auckland are likely to witness further liquidation in equities, as well as a rush towards disowning the Kiwi bonds, ahead of the key activity numbers and the Federal Open Market Committee (FOMC) Meeting Minutes. It should be noted that the press conference from RBNZ Governor Adrian Orr will be closely watched for immediate directions as traders will seek more clues backing the latest hawkish.

Also read: Breaking: NZD/USD is volatile on RBNZ hawkish 75Bp hike