New Zealand bonds close modestly higher on short-covering, all eyes on Yellen’s testimony

The New Zealand government bonds closed modestly higher Monday as investors covered previous short positions after witnessing long winning streak in the previous week. Alos, investors remain cautious ahead of the Federal Reserve Chair Janet Yellen’s testimony scheduled to be held on February 14 at 15:00GMT.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 3.23 percent at the time of closing, the yield on 7-year note also slid nearly 1 basis point to 2.83 percent and the yield on short-term 2-year note traded 1/2 basis point lower at 2.20 percent.

Yellen’s testimony is likely to throw signals as to whether the central bank is considering an interest rate hike in its March monetary policy meeting and whether officials’ economic outlook is set to improve.

Further, at its February interest rate decision, the central bank kept the Official Cash Rate on hold at 1.75 percent. The bank also signalled that the OCR is likely to remain on hold for some time. The Bank’s forecasts for the OCR have been nudged up very slightly over the next few years, and now curve up just a little in late-2019 or early-2020. This doesn’t suggest that any rate hikes are imminent.

"With inflation expected to lift only gradually, we see a very low probability that recent OCR cuts will be reversed any time soon," Westpac commented in its latest research report.

Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed 0.44 percent higher at 7,134.50, while at 05:00 GMT, the FxWirePro's Hourly NZD Strength Index remained highly bearish at -126.93 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex