New Zealand bonds close mixed as investors eye GDT price auction amid silent trading week

The New Zealand bonds closed on a mixed note Monday as investors wait to watch the country’s GlobalDairyTrade price auction, scheduled to be held on September 5 amid a silent trading week that will witness little data of major economic significance.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, hovered around 2.86 percent, the yield on 7-year note rose nearly 1 basis point to 2.70 percent and the yield on short-term 2-year ended 1 basis point lower at 2.00 percent.

NZ’s household incomes are being boosted by wage gains, strong employment, a sharp turnaround in farm incomes, and a boost from the likes of secondary income sources. The way election promises are going, the latter looks set to see an even bigger lift. There are headwinds: discretionary cash-flow growth looks set to slow given a turn in housing equity withdrawal, and that will challenge the growth in spending on big-ticket items; our eyes are on motor vehicle sales.

Nevertheless, the decent income growth backdrop should still be supportive for spending overall, and it also means that stabilising the ratio of debt to disposable income need not require credit growth to slow too much further. Q2 partial indicators this week should be consistent with reasonable GDP growth, while the next GDT auction and our commodity price index will provide a steer on farm-gate returns, especially in the context of the recent falls in the NZD.

Meanwhile, the NZX 50 index closed 0.18 percent lower at 7,808.22, while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained highly bearish at -140.37 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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