New Zealand bonds close lower following RBNZ’s upbeat inflation expectations

The New Zealand bonds ended Friday’s session on a weaker note after the Reserve Bank of New Zealand (RBNZ) remained upbeat in its inflation expectations, released early in the day. Further, weakness in global debt market also waned investors away from safe-haven instruments, dragging prices lower.

At the time of closing, the yield on the benchmark 10-year bond, which moves inversely to its price, jumped 1-1/2 basis points to 3.06 percent, the yield on 7-year note also climbed 1-1/2 basis points to 2.73 percent and the yield on short-term 2-year note traded 1/2 basis point higher at 2.11 percent.

Inflation expectations as measured by the RBNZ's quarterly survey rose again in the June quarter, with expectations for inflation in two years’ time rising from 1.92 percent to 2.17 percent. That’s the first time they’ve been above the RBNZ’s 2 percent target midpoint since 2014. Expectations for one year ahead, less crucial to the RBNZ’s policy horizon, also posted a solid gain, rising from 1.56 percent to 1.92 percent.

"We expect the RBNZ to hold the OCR at 1.75 percent next week. However, with the inflation environment looking firmer than it has been for the past few years, the RBNZ are likely to give a stronger signal that the next move in interest rates will be up. We expect the CB’s interest rate projections to be more consistent with an OCR hike by late 2018 (rather than in 2019 as was assumed in February when they last published projections)," Westpac commented in its latest research note.

Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed 0.18 percent lower at 7,365.50, while at 05:00GMT the FxWirePro's Hourly NZD Strength Index remained slightly bearish at -96.06 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex