New Zealand bonds close higher on as Turkish lira extends decline following political woes with U.S.

The New Zealand bonds closed higher Monday after investors flooded into safe-haven instruments, following a decline in the Turkish lira as markets remain worried over the political tiff the country is experiencing with the United States.

At the time of closing, the yield on the benchmark 10-year note, which moves inversely to its price, slipped 1 basis point to 2.60 percent, the yield on the long-term 20-year note fell 1-1/2 basis points to 2.93 percent and the yield on short-term 1-year also closed 1/2 basis point lower at 1.72 percent.

Turkey’s financial crisis has taken centre-stage, displacing trade wars as the immediate concern. Worries are building that this may lead to contagion across the emerging market space. Policy steps (aggressive rate hikes and possible fiscal cuts) to curtail the negative spiral have not yet been pushed forward, DBS Economics & Strategy said in its latest research report.

Accordingly, the weakening Lira and high local rates have been the logical outcome, leading to some spillover on EM rates. US sanctions only worsen Turkey’s situation. The European Central Bank’s (ECB) has also flagged concern about European Union banks’ exposure to Turkey, the report added.

Meanwhile, the NZX 50 index closed 0.73 percent lower at 8,945.04, while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained slightly bearish at -77.07 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex