New Zealand bond yields end session at record low as investors wary ahead of GDT auction overnight

The New Zealand government bonds closed higher on Tuesday as traders were cautious ahead of GlobalDairyTrade (GDT) auction overnight. Also, rising bets that New Zealand’s central bank will cut its cash rate in the coming months from an already record-low 2.25 percent, drove traders towards safe-haven buying.

The yield on benchmark 10-year bond, which moves inversely to its price fell 1-1/2 basis point to 2.315 percent in the end session, yield on 7-year note also dipped 1-1/2 basis point to 2.025 percent and the yield on short-term 2-year note also tumbled 1-1/2 basis points to 1.985 percent.

The biggest data release for New Zealand is the GlobalDairyTrade auction overnight Tuesday, on Wednesday morning July 6, has the potential to be a real bellwether event. The volumes of WMP on offer will be up more than 50 percent from the last sale. That price was down 4.5 per cent to the previous auction, following a gradual rise from $US1952 at the beginning of the year. Interestingly, it is important to see whether the buyers from China be there?  If not, NZ is in trouble.

In terms of data, June ANZ commodity price index rose 3.7 percent m/m, as compared to 1 percent in May. On the other hand, June QV house prices rose 13.5 percent y/y, from 12.4 percent in May.

Moreover, according to the New Zealand Institute of Economic Research (NZIER) quarterly Business Opinion survey, Q2 business confidence jumped to 19, from 2 in Q1 (net 19 percent of firms expect business conditions to improve). Also, Q2 domestic trading gauge has climbed to 22 from 8 while for Q3, the outlook for domestic trading is rose to from 6. Also, improvement in sentiment was widespread across the sectors and regions.

According to New Zealand's Monthly Economic Indicators released by the Treasury showed that the Brexit was the main focus of international markets this month. The impact of the UK's exit from the EU on the New Zealand economy is uncertain, but is not considered likely to be significant, at least in the short term.

It also mentioned that March quarter real GDP growth was stronger than expected, driven by construction, tourism and services and underpinned by population growth. The current account deficit narrowed, partly owing to an increase in the terms of trade that also supported nominal GDP growth.

In addition, the report also mentioned that global market volatility escalated in early June with uncertainty around the speed of US monetary policy normalisation and at the end of the month with the 'Brexit' referendum.

Moreover, the ANZ, the fourth largest bank by market capitalization in Australia, in its report mentioned that it is looking forward to a rate cut from the Reserve Bank of New Zealand in August, driven by the post-Brexit vote turmoil. Also, Westpac, an Australian bank and financial-services provider suggested that the market pricing for the OCR currently implies a 72 percent chance of a cut in August, compared to around 45 percent before the UK vote.

The New Zealand’s benchmark S&P/NZX50 Index closed up 30.04 points to 6,970.99.