New Zealand 10-year bond yields relapse towards 2 pct mark on RBNZ easing hopes

New Zealand's 10-year bond yields relapsed towards two percent mark as investors speculated that the Reserve Bank of New Zealand (RBNZ) will lower its key interest rate in its November monetary policy decision.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 2.335 percent, the yield on 7-year note ended 1 basis point lower at 2.090 percent and the yield on short-term 2-year note also slid 1 basis point to 1.920 percent.

The 10-year bond yields have fallen nearly 30 basis points in just seven days after the RBNZ hinted to lower the official cash rate further in November based on inflation figures, at its last monetary policy meeting held on Wednesday.

Last week, the RBNZ left the OCR unchanged at 2.00 percent as was widely expected. Much of the language in today’s statement was repeated from August, indicating that the RBNZ remains 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.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 37.53 points to 7,290.45.