New Zealand 10-year bond yields close highest since February following global debt sell-off

The New Zealand 10-year bond yields closed highest since February on Monday following heavy sell-off in global Treasury market.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 1/2 basis point to 3.135 percent (highest since February), the yield on 5-year note also ended 1/2 basis point higher at 2.523 percent and the yield on short-term 2-year note bounced 1/2 basis point to 2.135 percent.

The Kiwi bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield bounced 9-1/2 basis points to 2.203 percent for the first time in 2016 and the Australian 10-year Treasury yields hit highest since April to 2.660 percent.

Also, a heavy sell-off in government bonds was supported by rising expectations that the U.S. President-elect Donald Trump's policies, such as fiscal expansion and protectionism on international trade, could support growth and inflation.

Last week, the United States Republican candidate Donald Trump pinned his victory against Democrat opponent Hillary Clinton in the 2016 presidential election. Investors again revised the outlook for US interest rates after Donald Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 84 percent.

Also, the fall in the number of people opting for unemployment benefits in the United States has strengthened the probability of a December interest rate hike by the Federal Reserve.

Moreover, the Reserve Bank of New Zealand in its November monetary policy meeting released last Thursday, lowered the official cash rate (OCR) once again by 25 basis points, after easing in August, a move is taken for the seventh time since June 2015, in an attempt to boost the slow-moving economy.

However, developments over the past few months have been positive for the New Zealand economy, and the downside risks to the RBNZ’s view have diminished. We expect that the OCR will remain on hold for an extended period. However, longer term rates look set to rise from here.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 39.98 points to 6,737.76. While at 05:00 GMT, the FxWirePro's Hourly New Zealand Dollar Strength Index remained highly bearish at -118.46 (lower than -75 represents a bearish trend).