New Zealand 10-year bond yields hit 6-1/2 month low at close on massive short-covering

The New Zealand 10-year bond yields hit a 6-1/2 month low on Thursday as the market witnessed a massive short-covering by the investors and after the Reserve Bank of New Zealand (RBNZ) released a balanced outlook on the Financial Stability Report (FSR) for the month of May, released early today.

At the time of closing, the yield on the benchmark 10-year bond, which moves inversely to its price, slumped 5-1/2 basis points to 2.75 percent, the yield on 7-year note plunged 4 basis points to 2.65 percent and the yield on short-term 2-year note ended 1-1/2 basis points lower at 1.93 percent.

The NZ bonds have been closely following developments in oil markets because of their impact on inflation expectations. The International benchmark Brent futures fell 0.77 percent to USD51.15 and West Texas Intermediate (WTI) slumped 0.83 percent to USD48.72 by 06:10 GMT.

The RBNZ released its latest Financial Stability Report, yesterday, a six-monthly overview of the potential risks to the financial system, along with developments in supervisory and regulatory policy.

The RBNZ noted that risks to the financial system have eased since the last report in November. House price inflation has cooled, and dairy prices have rebounded from last year’s lows. However, both households and dairy farmers remain vulnerable due to high levels of debt. The RBNZ highlighted the risks to homeowners from a sharp rise in interest rates, for instance, if access to offshore funding became more costly.

"Unlike previous episodes such as in 2014, when mortgages rates rose then fell again, we expect interest rates will continue to push higher as global interest rates head higher and local banks compete harder for funding. We expect the national average house price to rise just 3 percent this year, compared to nearly 14 percent last year," Westpac commented in its latest research report.

Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed 0.43 percent higher at 7,450.90 while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at 22.75 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex