New Zealand bonds trade lower ahead of Governor Wheeler’s speech; GDT auction also in focus

The New Zealand government bonds closed lower Monday as investors awaited the Reserve Bank of New Zealand Governor Graeme Wheeler's speech.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 3 basis points to 2.325 percent, the yield on 7-year note ended 2 basis points higher at 2.080 percent and the yield on short-term 2-year note climbed 1-1/2 basis points to 1.925 percent.

Moreover, New Zealand Treasury's MEI in its report mentioned that key economic data releases in September point to stronger GDP growth over 2016 than expected in the Budget Economic and Fiscal Update. Solid GDP growth in the June quarter was driven by construction, with support from the services sector.

Also, the current account deficit narrowed and nominal GDP growth was strong, despite a decline in the terms of trade. Although most central banks held policy rates unchanged in September, the landscape of global monetary policy has changed with lowered prospects for future easing, despite continuing economic weakness.-Rtrs

New Zealand’ John Key has signalled a rapid and unexpected rise in interest rates and "something big that happens internationally" as the biggest threats to the New Zealand economy. Said almost every recession we've had is driven by real interest rates going up and New Zealand has been enjoying economic growth at 3.6 percent of GDP - the highest grow rate in the OECD - on the back of a 70-year low in interest rates.

In additon, the RBNZ left the OCR unchanged at 2.00 percent in its September monetary policy meeting and indicated that the central bank will remain on track for an OCR cut at the November review. Despite solid economic growth, the RBNZ faces an uncomfortably slow return to the inflation target, with the risk that this could drag inflation expectations even lower.

We foresee that the central will hold its key interest rate until it examines the upcoming third quarter inflation, which is scheduled to release in late October. However, given the current market situation 25 basis points cut in November is widely anticipated among the investors.

“We expect the RBNZ will cut the Official Cash Rate twice more, rather than sit idly by while the NZD soars and inflation undershoots the target ad infinitum,” said ANZ in a report to clients.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 11.40 points to 7,372.49.