New Zealand bonds close modestly higher in subdued trade; Wheeler hints steady interest rate in near-term

The New Zealand government bonds closed modestly higher on Thursday, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance.

Also, the market will remain keen to focus on today’s European Central Bank (ECB) monetary policy meeting and next week’s Federal Reserve policy decision.

The yield on the benchmark 10-year bond, which moves inversely to its price, closed 1 basis point lower at 3.19 percent, the yield on 7-year note ended down nearly 1 basis point to 2.79 percent and the yield on short-term 2-year note fell 1 basis point to 2.14 percent.

New Zealand central bank Governor Graeme Wheeler said interest rates are probably low enough to return inflation to his 2 percent goal amid a robust economic expansion. Wheeler said today that the exchange rate is higher than the economic fundamentals would suggest is appropriate, but the global forces that have boosted the kiwi dollar may be abating, Bloomberg reported.

Wheeler also reiterated that the bank remains concerned about the booming housing market, which has been fuelled by record-low borrowing costs. House-price inflation is much higher than desirable and poses concerns for financial stability, they added.

Moreover, the latest Global Dairy Trade (GDT) auction recorded a 3.5 percent increase in prices following a 4.5 percent gain in the previous auction, while Whole Milk Powder prices rose 4.9 percent. Prices have increased at the last 4 auctions and in 8 of the last 9 auctions with prices now at the highest since the end of June 2014.

The Reserve Bank of New Zealand Governor Graeme Wheeler while speaking before a parliamentary committee, said that he expects consumer inflation to rebound to the central bank’s target band in the last quarter of 2016.

Moreover, New Zealand’s Prime Minister John Key surprisingly announced his resignation today after 8 years of service ahead of next general election, which is scheduled to be held in late 2017. Finance Minister Bill English is mostly expected to take over after Key’s formal resignation on next Monday.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 26.24 points to 6,916.01.