New Zealand bonds climb sharply at close despite recovery in dairy prices, tracking rally in U.S. Treasuries

The New Zealand bonds climbed sharply at the time of closing as investors have largely shrugged off the recovery in dairy prices at the latest GlobalDairyTrade price auction held overnight, tracking the biggest rally in its U.S. counterpart since March, following a plethora of domestic, global as well as natural disturbances that pushed investors into safe-haven assets.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, slumped 7 basis points to 2.81 percent, the yield on 7-year note also plunged 6-1/2 basis points to 2.65 percent and the yield on short-term 2-year ended 5 basis points lower at 1.97 percent.

U.S. Treasuries recorded their biggest rally since March this year, as global economic sentiments remain perturbed on hovering geo-political tensions over the Korean Peninsula, a natural threat from Hurricane Harvey and dovish comments from a top Federal Reserve official.

On Monday, investors have also faced with the news that another major storm, the category five Hurricane Irma, was headed for Florida, on the heels of Harvey’s destruction in Texas. Comments from Fed governor Lael Brainard that urged caution on lifting short-term interest rates while inflation remains subdued also underpinned the advance in US government debt. Investors have rapidly lowered their expectations that the Fed will be able to raise rates again this year. On Tuesday, the odds of a quarter-point rate rise by year’s end fell to one-in-four from one-in-three the day before, FT reported.

Lastly, dairy prices, led by butter, have risen 0.3 percent at the latest global dairy auction to an average of USD3323 per tonne. The latest prices follow a three-week break, with a dip of 0.4 per cent recorded at the last auction. Analysts were predicting a small rise in the overall index led by whole milk powder (WMP) based on the premiums that the futures market was showing. 

Meanwhile, the NZX 50 index ended 0.16 percent higher at 7,790.21, while at 04:00GMT, the FxWirePro's Hourly NZD Strength Index remained highly bullish at 120.73 (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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