New Zealand bonds close marginally higher on short covering

The New Zealand government bonds closed modestly higher Monday as investors covered previous short positions. Also, investors moved towards safe-haven buying after August non-farm payroll came weaker than expected, highlighting that a rate hike in September would be highly unlikely.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 2.305 percent, the yield on 7-year note also ended 1/2 basis point lower at 2.010 percent and the yield on short-term 2-year note also dipped 1 basis point to 1.865 percent.

The August Labor Department employment situation report revealed a weaker +151k increase in non-farm payrolls, below market expectations for a +180k increase, as compared to the revised +275k result that occurred in July (previous was +255k).

This comes alongside no change in the unemployment rate at 4.9 percent, above expectations for a 4.8 percent result. Despite the weaker than expected headline result, this report shows lingering support for employment conditions.

Nevertheless, maintained improvement needs to be seen in order to alleviate caution on behalf of the FOMC regarding concerns elsewhere. Hence, we see this result as likely to provide enough weight to support the Fed leaving rates unchanged at the September FOMC meeting.

Lastly, investors will remain keen to focus on the Tuesday’s GlobalDairyTrade (GDT) Price Index figure.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 65.73 points to 7,491.84.