New Zealand bonds close marginally higher on RBNZ easing bets; 10-year yields fall first time this week

The New Zealand government bonds closed marginally higher Thursday as investors speculate that the Reserve Bank of New Zealand (RBNZ) will lower its interest rate in November’s monetary policy meeting in the wake of persistent weak inflation.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1/2 basis point to 2.615 percent (fell for the first time this week), the yield on 7-year note also ended 1/2 basis point lower at 2.288 percent and the yield on short-term 2-year note slid ½ basis point to 1.945 percent.

On Wednesday, New Zealand’s Global Dairy Trade (GDT) price index improved 1.4 percent at the latest price auction, from an unexpected 3.0 decline previously. Also, average milk price rose to USD 2,965 per metric tonne, compared to prior USD 2,880 per metric tonne.

New Zealand’s third quarter consumer inflation rose by 0.2 percent, higher than the market expectations of flat outcome, from up 0.4 percent in the previous quarter. On an annual basis, inflation dropped to 0.2 percent, the eighth straight quarter below 1 percent. However, we foresee that today's inflation reading was not far from the central bank's expectation, and will not stand in the way of it cutting the official cash rate again in November.

Moreover, the Reserve Bank had forecast a 0.1 percent increase in its August Monetary Policy Statement. The annual inflation rate slowed from 0.4 percent to 0.2 percent, just above the record low of 0.1 percent that it briefly touched in December last year, reported Westpac in its Research note.

The Reserve Bank of New Zealand is still widely expected to cut rates at its November 10 policy meeting, economists are now much more sceptical about cuts after that, reported Reuters.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 2.76 points to 6,973.78.