New Zealand bonds close lower on profit taking, crude oil prices gain

The New Zealand government bonds closed lower Thursday as investors cashed in profits after relishing previous gains. Also, recovery in crude oil prices discouraged investors from safe-haven buying.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 2 basis points to 2.280 percent, the yield on 7-year note ended 1-1/2 basis points higher at 1.995 percent and the yield on short-term 2-year note climbed 1 basis point to 1.855 percent.

The Kiwi bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Reserve Bank of New Zealand's target. Crude oil prices rebound after the US crude stocks surprisingly plunged by 12.1 million barrels last week, data from the American Petroleum Institute showed after market settlement on Wednesday, compared with expectations for an increase of around 200,000 barrels. The International benchmark Brent futures rose 1.56 percent to $48.73 and West Texas Intermediate (WTI) jumped 1.67 percent to $46.26 by 05:50 GMT.

Moreover, New Zealand’s August ANZ inflation gauge increased 0.1 percent m/m, from down 0.3 percent in July. Moreover, it rose +2 percent y/y, from +2.1 percent previously.

On Wednesday, New Zealand's GlobalDairyTrade price index rose 7.7 percent to 2,920 US dollar (3940 NZ dollar) in latest Fonterra's auction, highlighted that the worldwide glut is easing gradually. Prices of milk powder rose 3.7 percent. This marked the third consecutive auction with solidly-rising prices.

On Tuesday, in terms of recent economic data release, New Zealand’s August QV house prices increased 14.6 percent y/y, from +14.1 percent in July. Prices were up 6 percent in the past 3 months, while Auckland house prices rose +15.9 percent y/y and +6.1 percent in the past 3 months. The strong performance of housing prices has been thought to be a constraint on RBNZ easing.

Lastly, investors will remain keen to focus on the next week’s Q2 GDP data.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 36.39 points to 7,534.72.