New Zealand bonds close lower following weakness in U.S. Treasuries

The New Zealand government bonds closed lower Friday as investors moved away from the safe-haven buying amid following weakness in the U.S. Treasuries.

Also, bond prices slumped after the U.S. 10-year Treasury yields jumped 5-1/2 basis points to 2.32 percent on hawkish Federal Reserve Janet Yellen’s testimony.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose more than 10 basis points to 3.110 percent, the yield on 7-year note ended nearly 9 basis points higher at 2.763 percent and the yield on short-term 2-year note bounced 7-1/2 basis points to 2.135 percent.

Federal Reserve Chair Janet Yellen, in her congressional testimony, strengthened bets that the central bank was on the right path to hike interest rates in December. This was the first direct signal from the Fed after December last year.

On the other hand, the 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.

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 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 up 43.18 points to 6,857.84. While at 05:00 GMT, the FxWirePro's Hourly New Zealand Dollar Strength Index remained slightly bearish at -75.70 (lower than -75 represents a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex