New Zealand bonds close mixed in subdued trade; Q2 GDP in focus

The New Zealand government bonds closed mixed Monday, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance. Also, investors remain focused on the second quarter gross domestic product (GDP) figure, which is scheduled to be released on Wednesday 04:15 GMT.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 2.455 percent, the yield on 7-year note ended 1 basis point lower at 2.135 percent and the yield on short-term 2-year note jumped 6 basis points to 1.935 percent.

In the early trading session, Kiwi 10-year bond yield bounced more than 10 basis points as the United States Federal Reserve rate hike speculation gathered steam following hawkish comments from the Fed policymakers. Also, Bloomberg’s implied portability for a rate hike increased to 30 percent for the September policy meeting, up from 25 percent calculated at the end of last week.

The Boston Federal Reserve President Eric Rosengren (a voter in 2016) said that he sees a reasonable case for gradual rate increases and a failure to continue the path of gradual rate normalisation could shorten the recovery; history shows the difficulty of slowing the economy after waiting too long to tighten policy.

He further added that payrolls growth has been somewhat choppy of late, but the United States economy is performing quite well, has proven resilient to international risks, and is at/close to full employment.

Additionally, Fed Governor Daniel Tarullo, speaking on CNBC, said that he will not comment on the timing of Fed rate increases, but wouldn't foreclose the possibility of a rise this year. Also, would want evidence that inflation will rise and can be sustained at 2 percent and answer to low-rate risks isn't necessary to hike. On balance his remarks seem to be on the side of holding off from tightening policy.

In addition, Dallas Fed President Robert Steven Kaplan said that the case for a rate hike has strengthened in the last few months, but the Fed can afford to be patient because neutral rates are low. He further added that low rates create distortions/imbalances and the Fed will debate this over the next few months. The ISM reports a little more negative than expected and does not think the economy is overheating, he added.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 188.84 points to 7,279.76.