New Zealand bonds close mixed amid anxiety over first U.S. Presidential debate

The New Zealand government bonds closed mixed Tuesday as investors remained anxious about the result of the first US Presidential debate between Democrat Hillary Clinton and Republican Donald Trump.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 2.365 percent, the yield on 7-year note ended flat at 2.110 percent and the yield on short-term 2-year note rose 2 basis points to 1.910 percent.

New Zealand’s August trade deficit widened to 1.3 billion NZ dollars in August, market expectations were for a deficit of -735 million, from down -433 million in July. Exports are down 8.7 percent y/y, to 3.39 billion, expectations was for 3.6 billion, from 3.96 billion, while imports rose to 4.65 billion (consensus was for 4.30 billion), from 4.4 billion in July. Wellington’s trade balance turned negative in July for the first time this year.

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, reported Westpac in its report.

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.

Lastly, The Kiwi bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Reserve Bank of New Zealand's target. The crude oil prices tumbled as investors took profits after prices climbed more than 3 percent in the previous session. The International benchmark Brent futures fell 0.23 percent to $47.82 and West Texas Intermediate (WTI) dipped 0.09 percent to $45.89 by 04:40 GMT.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 11.95 points to 7,252.92.