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The New Zealand government bonds closed lower on Monday as hawkish comments from U.S Federal Reserve officials strengthened bets of an interest rate hike in June. The yield on the benchmark 10-year bonds which moves inversely to its price rose 3bps to 2.750 pct and the yield on short-term 2-year bonds climbed 4bps to 2.220 pct.
The Fed Bank of Boston President Eric Rosengren (voter 2016), told the Financial Times at the weekend that he’s ready to back a rate increase. Said that economy in its district seems good and the Fed is getting closer to meeting jobs and inflation target. He further added that Fed funds rate at 35bps is pretty low, given that the economy is pretty close to full employment.
“A lack of New Zealand data means investors will look to the preliminary Markit PMI surveys and comments expected from US Federal Reserve officials later in the global trading day for direction,” the ANZ economists said in a note.
Domestically the main focus is on the government's budget, the New Zealand 2016 Budget to be released on May 26, Thursday is expected to remain on a low-key note, concentrating its focus on debt reduction with no real pressure for a change of course in either direction. Unlike in many rich countries, the operating balance has been brought back into, but projected to increase over time, Westpac reported.
Lastly, we foresee the RBNZ cutting rate in June to around 2% and expectations of a further rate cut in August remains on. The Central bank may act on the housing market if they cut any further. However, the bank has not signalled any cut in the next policy meet in June, retaining its easing bias. Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index dropped 2.09 points, or 0.03 pct, to 6,907.77.
