New Zealand bonds gain as investors shrug off rise in dairy prices

The New Zealand government bonds closed higher Wednesday as investors shrugged off the gains in dairy prices at Fonterra's GlobalDairyTrade auction, highlighting that the worldwide glut is easing gradually.

Also, the bond prices gained following the United States debt market, which bolstered by a weaker than expected ISM non-manufacturing reading that came in around 51.4, its lowest level since January 2010.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 7-1/2 basis points to 2.260 percent, the yield on 7-year note ended 6 basis points lower at 1.980 percent and the yield on short-term 2-year note tumbled 1-1/2 basis points to 1.845 percent.

New Zealand's GlobalDairyTrade price index rose +7.7 percent to 2,920 US dollar (3940 NZ dollar) in latest Fonterra's auction; prices of milk powder rose +3.7 percent. This marked the third consecutive auction with solidly-rising prices.

Moreover, the August ISM estimate of United States national non-manufacturing conditions revealed downward pressure in the composite index reading to 51.4 (lowest since January 2010), versus the unrevised 55.5 reading that occurred in July. This comes in below market expectations for a 55.0 result.

On Tuesday, in terms of recent economic data release, New Zealand’s August QV house prices increased 14.6 percent y/y, from +14.1 percent in July. Prices were up 6 percent in the past 3 months, while Auckland house prices rose +15.9 percent y/y and +6.1 percent in the past 3 months. The strong performance of housing prices has been thought to be a constraint on RBNZ easing.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 67.56 points to 7,571.10.