WELLINGTON: The New Zealand government bonds slumped Wednesday as investors moved away from safe-haven buying after the Federal Reserve December rate hike probability finally reached 100 percent, boosting demand for riskier assets. The yield on the benchmark 10-year bond, which moves inversely to its price, rose 5-1/2 basis points to 3.14 percent, the yield on 7-year note also ended 4 basis points higher to 2.77 percent and the yield on short-term 2-year note bounced 3-1/2 basis points to 2.13 percent.
New Zealand once again hit by a powerful earthquake of 6.3 magnitudes off the North Island on Tuesday. The epicentre was 193KM northeast of the capital Wellington, according to the U.S. Geological Survey. Last week, the New Zealand has been struck by a powerful 7.5 magnitude earthquake with its epicentre located on the east coast of the country’s South Island. RBNZ Deputy Governor Geoff Bascand said that worries among consumers have led to lower inflation across the economy. Also, their concerns have risen since the global financial crisis, with less spending from windfall gains. However, he expects per capita income to gradually pick up the pace in the medium-term. Moreover, the New Zealand bonds have been closely following developments in oil markets because of their impact on inflation expectations, which is still below the Reserve Bank of New Zealand’s target. Crude oil prices recovered on rising consensus that the OPEC will find a way to reduce production. The International benchmark Brent futures rose to $49 and West Texas Intermediate (WTI) jumped to $48.
Further, the earthquake will disrupt business activity in the short term, but in most parts of the country activity is likely to return to normal in a matter of days. Also, the negative impact on consumer confidence and tourism numbers could last slightly longer, especially if (as seismologists expect) aftershocks continue in coming months. Moreover, the Reserve Bank of New Zealand in its November monetary policy meeting released on November 10, lowered the official cash rate (OCR) once again by 25 basis points, after easing in August, a move is taken for the seventh time since June 2015, in an attempt to boost the slow-moving economy.
However, developments over the past few months have been positive for the New Zealand economy, and the downside risks to the RBNZ’s view have diminished. We expect that the OCR will remain on hold for an extended period. However, longer term rates look set to rise from here. Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 35.06 points to 6,851.45. While at 05:00 GMT, the FxWirePro’s Hourly New Zealand Dollar Strength Index steadily approaches bullish trend, currently at +74.12 (higher than +75 represent a bullish trend).
