New Zealand bonds surge at close despite better-than-expected February trade balance data; global tensions hover

New Zealand government bonds closed higher Monday as investors have largely shrugged-off the better-than-expected trade balance data for the month of February amid global trade war tensions that continued to mount.

Further, the Minister of Finance and the Reserve Bank of New Zealand (RBNZ) today released the Policy Targets Agreement (PTA) under which incoming Governor Adrian Orr will operate. They also issued a press release detailing progress towards Phase One of reform to the Reserve Bank Act.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, slumped 3 basis points to 2.80 percent, the yield on 20-year plunged 3-1/2 basis points to 3.32 percent while the yield on short-term 2-year closed 2 basis points lower at 1.91 percent.

The monthly trade balance came in better than expected at NZD217 million (-NZD100 million was market expectations) courtesy of lower vehicle and crude oil imports.  The overall picture of strong export performance, offset by solid domestic economic activity, remains – with the annual deficit continuing to fluctuate around the NZD3 billion mark.

In seasonally adjusted terms export value rose 2.5 percent m/m. The better performance was led by sheepmeat, seafood, wine, and forestry. By country, developed Asian market activity has picked up in recent months, with South Korea, Japan, and Singapore exports all putting in strong performances over the last quarter. Demand from the Greater China area also continued, despite Chinese New Year celebrations. This continues to signal a healthy backdrop for soft commodity prices.

Lastly, the RBNZ’s shift to a dual mandate targeting both inflation and the labor market has been well signaled. But the devil was always going to be in the detail.

Meanwhile, the NZX 50 index closed nearly 1 percent lower at 8,432.41, while at 05:00GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at 73.51 (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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