New Zealand bonds end week on soft note following global bond rout

The New Zealand government bonds ended the week on a softer note following the current rout in the global debt market.

The yield on the benchmark 10-year bond, which moves inversely to its price, closed 5-1/2 basis points higher at 3.28 percent, hitting highest since January this year.

The Kiwi bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield climbed to 2.43 percent, highest since July last year.

In addition, crude oil prices fell more than 1 percent as investor booked profit after a long rally post-OPEC deal. The International benchmark Brent futures fell 1.09 percent to $53.35 and West Texas Intermediate (WTI) dipped 0.80 percent to $50.65 by 04:30 GMT.

The Organization of the Petroleum Exporting Countries (OPEC) has agreed to cut production by roughly 1.2 Mb/d to 32.5, which equates to a 4.5-4.6 percent cut per member country. We believe the outcome is consistent with our view of what OPEC production levels were expected to be in 2017 irrespective of the deal reached yesterday, reported Barclays in its research note.

In other words, the meeting is highly unlikely to substantially affect the oil market balance.  Compared with our assessment of OPEC supply last month, we have adjusted our first-quarter of 2017 production estimate lower by 350 kb/d, which will result in a slightly steeper draw than our balances were forecasting, they added.

On Wednesday, the RBNZ in its Financial Stability report mentioned that the country’s financial system is sound but continues to face risks and the banking system has strong capital and funding buffers, profits remain high. The central added that the financial markets have remained volatile due to political uncertainty and house price inflation in Auckland has softened but it is uncertain if it will be sustained.

Also, in the press conference, Governor Graeme Wheeler said that the RBNZ will hold its policy rate steady for the foreseeable future to curb property bubble. Also, added that the December consumer inflation to revive, rising above 1 percent mark.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 27.89 points to 6,904.85. While at 05:00 GMT, the FxWirePro's Hourly New Zealand Dollar Strength Index remained slightly bearish at -95.81 (lower than -75 represent a bearish trend).