New Zealand bonds close marginally higher on short covering, December CPI data in focus

The New Zealand government bonds closed modestly higher Thursday as investors covered previous short positions. Also, investors await the release of the fourth-quarter consumer price inflation data, scheduled to be released next week.

The yield on the benchmark 10-year bond, which moves inversely to its price, ended 1 basis point higher at 3.22 percent, the yield on 7-year note also ended near 1 basis point lower at 2.90 percent and the yield on short-term 2-year note also dipped 1/2 basis point to 2.28 percent.

Investors covered previous short positions on the back of heavy selling, post Federal Reserve Chair Janet Yellen’s hawkish comments on Wednesday. The central bank governor mentioned that the US is near full employment and with inflation figures stabilizing, there is need for gradual Fed tightening, although she did not mention the exact timing of an interest rate hike.

Further, the New Zealand headline inflation is likely to have accelerated in the fourth quarter. According to an ANZ research report, the headline CPI is expected to have accelerated 0.3 percent sequentially, a tad above RBNZ’s November MPS pick of 0.2 percent. Annual inflation is anticipated to rise to 1.2 percent.

However, investors shrugged off the rise in global dairy prices at the latest GlobalDairyTrade auction on Tuesday. In all, prices were up 0.6 percent, after previous auction’s 3.5 percent decline. After a 7.7 percent decline last auction, prices of whole milk powder remained stable, falling slightly by 0.1 percent to USD 3,282/tonne.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed 0.04 percent higher at 7,062.36, while at 5:00 GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at -1.41 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex