New Zealand bonds close higher following firmness in global debt market; likely to waver next week in thin trade

The New Zealand government bonds closed higher Friday, following a recovery in the global debt market. Also, weak United States equities and higher U.S. Treasury prices boosted demand for safe-haven assets.

We foresee that bond prices will keep drifting between small gains and losses in quiet next week’s trading session. Also, trading activity to resume after New Year celebrations, probably from the second week of January, 2017 as global market receives no more important data till then. The market will now directly open on Wednesday, January 4.

The yield on the benchmark 10-year bond, which moves inversely to its price, closed 3-1/2 basis points lower at 3.36 percent, the yield on 7-year note ended down 3 basis points to 2.98 percent and the yield on short-term 2-year note slid 3-1/2 basis points at 2.28 percent.

The Kiwi bonds have been closely following developments in the U.S. debt market. The benchmark 10-year bonds witnessed strong buying in the 7-year auction, dragging yields by 3 basis points to 2.47 percent. The USD28 billion 7-year note auction came in at 2.284 percent (51.18 percent award at high) with a bid-to-cover ratio of 2.54, non-comps of USD15.1 million, an indirect bid of 64.0 percent and a direct bid of 19.0 percent. In context, the 12-auction average for bid-to-cover is 2.50, for indirect is 61.8 percent and for directs is 12.5 percent.

Also, the U.S. equities moved downwards with the Dow index declining -13.90 points or -0.07 percent to 19819.78. Meanwhile, the S&P 500 was down -0.66 points or -0.03 percent to 2249.26. This came alongside downward pressure for crude prices with February crude decreasing -USD0.29 to USD53.77 per barrel.

Last week, the gross domestic product (GDP) of New Zealand jumped more than what markets had initially anticipated, during the third quarter of this year. However, it remained below the Reserve Bank of New Zealand’s (RBNZ) target range, thus compelling the central bank to remain on hold for the foreseeable future.

The GDP rose by 1.1 percent in the September quarter. But while this was stronger than our and the market forecast, growth in the March and June quarters were revised to 0.7 percent, from 0.9 percent previously in the second quarter. This resulted in annual growth of 3.5 percent, a touch weaker than expected, data released by Statistics New Zealand showed.

Moreover, the current account deficit in New Zealand remained nearly unchanged during the third quarter of this year, in line with what markets had initially anticipated. Looking ahead, the goods balance is set to improve over the remainder of this year and into next as the surge in dairy prices since mid-year begins to be reflected in export receipts.

New Zealand’s annual current account deficit was unchanged in the September quarter, remaining at 2.9 percent of GDP. The details of the release were also in line with expectations, data released by Statistics New Zealand showed.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed 0.16 percent lower at 6,881.22. While at 04:00 GMT, the FxWirePro's Hourly New Zealand Dollar Strength Index stood neutral at +34.50 (higher than +75 represent a bullish trend).