New Zealand bonds close higher after imports hit record high in October, trade deficit widens

New Zealand government bonds closed higher on Friday after the country’s imports hit a record high in October. Also, rising expectations that the Reserve Bank of New Zealand is set to keep interest rates at record lows for a long time to come, pushed the yields 3.5 basis points lower at the long end of the curve.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 1-1/2 basis points to 2.795 percent, the yield on 20-year note also dipped 1-1/2 basis points to 3.385 percent and the yield on short-term 2-year ended 1/2 basis point lower at 1.970 percent.

New Zealand's monthly trade deficit widened in October as demand for imported mechanical machinery offset gains in the value of the country's export commodities with renewed appetite from Chinese buyers. The country's trade deficit was NZD871 million in October compared to NZD798 million a year earlier, Statistics New Zealand said.

The value of imports climbed 15 percent to NZD5.43 billion in October, driven by a 33 percent jump in purchases of mechanical machinery and equipment to NZD777 million, including items such as jet parts and computers. That offset a 16 percent increase in exports to NZD4.56 billion.

Moreover, markets are still less than convinced by the prospects of the center-left coalition government and its plans for the Reserve Bank of New Zealand (RBNZ). With the appointment of a new Governor looming, there are worries that the central bank could see a shift in its policy outlook, potentially moving back towards a dovish bias, reported Torfx.

A prospective alteration to the RBNZ’s mandate has also extroverted the appeal of the New Zealand bonds, with investors nervous of the central bank being tasked with stimulating employment in addition to its inflation target.

In the United States, Treasuries pushed higher across the curve overnight during a relatively quiet session ahead of the Thanksgiving holiday. Overall, Treasuries found support early on from weaker than expected durable goods orders data for October, opening last quarter of 2017 on relatively weak footing, ultimately reaching session highs in the wake of the FOMC minutes release which showed a mixed of concerns ranging from dampened inflation (weighing on December rate hike prospects) to fears of growing financial imbalances (remaining supportive of the Fed staying on course to deliver gradual further tightening).

Meanwhile, the NZX 50 index closed 0.35 percent higher at 8,130.09, while at 05:00GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at 38.97 (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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