New Zealand 10-year bond yields hit highest in 6 months on rise in employment, GDT price index

The New Zealand 10-year bond yields hit highest in six months on Wednesday after recent data showed that the country’s unemployment rate fell to lowest in nearly eight years. Also, jump in Global Dairy Trade (GDT) price index and a slight increase in RBNZ’s inflation expectations drove out investors from safe-haven buying.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 6 basis points to 2.780 percent.

New Zealand dairy prices leaped higher in last night's GlobalDairyTrade auction. Overall prices were up 11.4 percent, driven by a 19.8 percent lift in whole milk powder prices to USD3,317/tonne. Whole milk powder prices are now at their highest levels since mid-2014.

Additionally, New Zealand’s third quarter unemployment rate fell to 4.9 percent, lower than the market expectations of 5.1 percent, from 5.1 percent in the second quarter of 2016. Also, employment change for the third quarter rose 1.4 percent q/q, against the consensus of 0.5 percent increase, from prior 2.4 percent, while the same rose 6.1 percent y/y, compared to 4.5 percent same period a year ago.

Moreover, RBNZ’s fourth quarter two-year inflation expectations slightly rose to 1.68 percent, from previous projection of 1.65 percent. Also, 1-year expectations increased to 1.29 percent, as compared to previous estimations of 1.26 percent. We foresee that this marginally firmer inflation projection will not cheer the central bank as inflation expectations still remain low.

The RBNZ’s decision on the OCR is due out 9th November and Graeme Wheeler’s intimations that further cuts are required going forward certainly seem to hint that rates could be lowered. We also support the fact that the Reserve Bank of New Zealand is still widely expected to cut rates at its November 10 policy meeting to 1.75 percent.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 76.74 points to 6,853.75.