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The New Zealand bonds closed mixed Tuesday as investors remained focus on the country’s employment report for the third-quarter of this year, scheduled to be released later today by 21:45GMT.
At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped 3-1/2 basis points to 3.01 percent, the yield on 20-year note slid 1 basis point to 3.54 percent and the yield on short-term 2-year ended 1 basis point lower at 2.04 percent.
After nearly a month of negotiations, New Zealand finally knows the form of the next Government; New Zealand First will support the Labour Party to form a minority coalition government. The Green Party will support the new government on confidence and supply.
No policy positions have been formally announced yet. However, comments by the various party leaders have highlighted some key areas where we are likely to see changes. These are discussed below.
Policy details so far suggest some downside risk to our GDP forecast for 2018 and upside risk to our GDP forecasts for 2019 and 2020, but this could change as new information comes to light. Labour's planned fiscal stimulus, on its own, could add around 20bps to the RBNZ’s longer-term forecast for the OCR, although other as yet unannounced policy changes will also have an effect.
The new coalition looks set to spend more than the previous Government, only partly funded by an extra tax. Spending will be weighted towards education and health. It will be partly funded by canceling the income tax cuts that were legislated to take effect on April 1 and by introducing new taxes. The balance would be funded by an additional $7bn of net core Crown debt over the next four years.
Meanwhile, the NZX 50 index closed flat at 8,130.10, while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained highly bearish at -121.38 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex
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