New Zealand bonds slump on higher GDP expectations, US 10-year Treasury yield hits June high

The New Zealand government bonds closed lower Wednesday as investors moved away from the safe-haven buying on expectations of higher second-quarter gross domestic product (GDP). Also, the United States 10-year Treasury yields broke the 1.70 percent mark on rising risk appetite among investors.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 7-1/2 basis points to 2.555 percent, the yield on 7-year note also ended 5-1/2 basis point higher at 2.210 percent and the yield on short-term 2-year note remained steady at 1.96 percent mark.

The second quarter gross domestic product (GDP) is scheduled to be released on Wednesday by 22:45 GMT and it is widely expected to indicate that the economy remained in sound shape in the second quarter. Following a modest growth of 0.7 percent in the previous quarter, the economy is anticipated to have grown 1 percent in the June quarter. This is most likely to push the yearly 2016 growth to 3.5 percent, the most rapid pace since 2014.

Construction activity is likely to have added the most to the second quarter growth again; however, gains are expected to be quite widespread throughout sectors. The agricultural sector seems to have performed better in the June quarter as meat and milk production recovered following a weaker starter to 2016 due to weather-related concerns, said Westpac in a research note.

Moreover, New Zealand’s August food prices jumped 1.3 percent m/m, from down 0.2 percent in July. Food price increased a seasonally adjusted 1.2 percent in August, snapping three months of cheaper goods, and led higher by a 1.7 percent rise in fruit and vegetable prices, Statistics New Zealand said.

The monthly spike in produce prices was driven by seasonally higher prices for tomatoes, lettuce and cabbage, while majorly influenced by record high banana prices, which climbed 22 percent. Banana prices were at their highest since the series began in 1949.

In terms of recent economic data, New Zealand’s second-quarter BoP current account deficit rose to 945 million, the expectation was for 295 million deficits, from surplus 1,306 million in the previous quarter. Additionally, current account to GDP ratio fell 2.9 percent, higher than the consensus of 2.6 percent, from down 3.0 percent.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 38.50 points to 7,210.73.