New Zealand bonds end tad lower after Q3 CPI tops expectations; eyes on GDT price auction

The New Zealand bonds ended Tuesday’s session lower after the country’s third-quarter consumer price inflation (CPI) beat market expectations. Further, investors are now closely eyeing the GlobalDairyTrade price auction, scheduled to be held later today, which will provide further direction to the debt market.

Also, the country’s political deadlock over which party will succeed in forming the coalition with NZ First Party added to range-bound trading in bond prices.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 1/2 basis point to 2.96 percent, the yield on 7-year note range-bound at 3.30 percent and the yield on short-term 2-year too ended tad higher at 2.09 percent.

New Zealand’s consumer prices rose 0.5 percent in the September quarter, right in line with our expectations. The result was slightly above the median market forecast of a 0.4 percent rise, and quite a bit higher than the 0.2 percent increase that the Reserve Bank had forecast in its August Monetary Policy Statement.

The annual inflation rate rose from 1.7 percent to 1.9 percent, putting it just a touch below the 2 percent midpoint of the Reserve Bank’s target band. Various measures of core inflation, which adjust for one-offs and volatile items, all tell a similar story: annual inflation was either steady or up slightly for the quarter and generally sitting at 2 percent or a little below.

Meanwhile, the NZX 50 index closed 0.26 percent higher at 8,112.05, while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained highly bullish at 160.68 (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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