New Zealand bonds close high ahead of Q4 retail sales, investors shrug off Fed Chair Yellen’s hawkish testimony

The New Zealand government bonds closed High Wednesday as investors remain cautious ahead of the Q4 retail sales, scheduled to be released on February 17. Also, markets have largely shrugged off the Federal Reserve Chair Janet Yellen’s hawkish testimony released later yesterday.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 3.32 percent at the time of closing, the yield on 7-year note also slid nearly 1 basis point to 2.89 percent and the yield on short-term 2-year note traded 1 basis point lower at 2.24 percent.

Yellen’s comments remained more hawkish than what markets had anticipated, further signalling monetary policy tightening in the near term.

"My colleagues on the FOMC and I expect the economy to continue to expand at a moderate pace, with the job market strengthening somewhat further and inflation gradually rising to 2 percent. That said, the economic outlook is uncertain, and monetary policy is not on a preset course," she said in her prepared testimony.

Further, seasonally adjusted national home sales volumes are likely to have fallen 6.3 percent m/m in January. While there has been plenty of volatility, this continues a cooler trend evident since around April 2016. In fact, turnover has fallen in seven of the past nine months and is 25 percent below April levels.

"With inflation expected to lift only gradually, we see a very low probability that recent OCR cuts will be reversed any time soon," Westpac commented in its latest research report.

Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed 0.41 percent higher at 7,180.02, while at 04:00 GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at -8.10 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex