New Zealand bonds close higher on weak investors risk appetite; 10-year yields down more than 10bps

The New Zealand government bonds closed higher Thursday as investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil. Also, an economy is still reeling from the impact of powerful Monday’s earthquakes.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 10 basis point to 3 percent, the yield on 7-year note ended nearly 9 basis points lower at 2.673 percent and the yield on short-term 2-year note slid 7-1/2 basis points to 2.060 percent.

Investors remained cautious ahead of the United States consumer inflation data and Federal Reserve Chair Janet Yellen’s testimony, in an attempt to estimate the Fed's most likely policy step.

Moreover, the Kiwi bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield tumbled 2-1/2 basis points to 2.200 percent.

New Zealand has been struck by a powerful 7.5 magnitude earthquake on Monday morning with its epicentre located on the east coast of the country’s South Island. While the damage is still being assessed, analysts estimate rebuilding work could cost 2.5 billion NZ Dollar, reported The Business Times.

Further, the earthquake will disrupt business activity in the short term, but in most parts of the country activity is likely to return to normal in a matter of days. Also, the negative impact on consumer confidence and tourism numbers could last slightly longer, especially if (as seismologists expect) aftershocks continue in coming months.

Oil prices decline after weekly U.S. crude stocks rose beyond expectations and a strong dollar weighed on commodities. The International benchmark Brent futures fell 0.15 percent to $46.38 and West Texas Intermediate (WTI) also dipped 0.13 percent to $45.51 by 05:40 GMT.

Moreover, the Reserve Bank of New Zealand in its November monetary policy meeting released last Thursday, lowered the official cash rate (OCR) once again by 25 basis points, after easing in August, a move is taken for the seventh time since June 2015, in an attempt to boost the slow-moving economy.

However, developments over the past few months have been positive for the New Zealand economy, and the downside risks to the RBNZ’s view have diminished. We expect that the OCR will remain on hold for an extended period. However, longer term rates look set to rise from here.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 9.92 points to 6,814.66. While at 05:00 GMT, the FxWirePro's Hourly New Zealand Dollar Strength Index stood neutral at +7.99 (higher than +75 represents a bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex