New Zealand bonds close higher as trade deficit widens in August

The New Zealand government bonds closed higher Monday as investors poured into safe-haven assets after data showed that the country’s trade deficit widened in August.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 3-1/2 basis points to 2.375 percent, the yield on 7-year note ended 2-1/2 basis points lower at 2.110 percent and the yield on 5-year note slid 2 basis points to 1.980 percent.

New Zealand August trade deficit widened to 1.3 billion NZ dollars in August, market expectation was for a deficit of 735 million, from down -433 million in July. Exports are down 8.7 percent y/y, to 3.39 billion, expectations was for 3.6 billion, from 3.96 billion, while imports rose to 4.65 billion (consensus was for 4.30 billion), from 4.4 billion in July. Wellington’s trade balance turned negative in July for the first time this year.

Last week, the RBNZ left the OCR unchanged at 2.00 percent as was widely expected. Much of the language in today’s statement was repeated from August, indicating that the RBNZ remains on track for an OCR cut at the November review. Despite solid economic growth, the RBNZ faces an uncomfortably slow return to the inflation target, with the risk that this could drag inflation expectations even lower, reported Westpac in its report.

We foresee that the central will hold its key interest rate until it examines the upcoming third quarter inflation, which is scheduled to release in late October. However, given the current market situation 25 basis points cut in November is widely anticipated among the investors.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 31.87 points to 7,264.87.