New Zealand bonds close modestly higher as investors wary ahead of RBNZ policy decision

The New Zealand government bonds closed modestly higher Friday as investors remained cautious ahead of the Reserve Bank of New Zealand’s monetary policy decision, which is scheduled to be held on September 21.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 2.580 percent, the yield on 7-year note also ended 1 basis point lower at 2.245 percent and the yield on short-term 2-year note dipped 1 basis point to 1.965 percent.

The RBNZ is set to meet next Thursday, and we foresee that the central bank will keep its official cash rate on hold at 2.00 percent, but continue to signal that a rate cut is likely in November. If inflation fails to improve over the coming months, the country’s apex bank may ease rate to 1.5 percent further before December.

The New Zealand economy expanded strongly in the second quarter; however, it was a tad lower than consensus expectations. In sequential terms, the economy expanded 0.9 percent in the June quarter, as compared with the consensus projection of 1.1 percent.

Also, first quarter’s growth was upwardly revised to 0.9 percent q/q from 0.7 percent. The New Zealand economy is bolstering and is likely to grow strongly in the second half of 2016, said ANZ in a research note.

On an annual basis, the country’s economy expanded 3.6 percent in the June quarter, slightly below consensus expectations of 3.7 percent. Per capita growth expanded to 0.5 percent in sequential terms, while the first quarter’s print was revised up from 0.1 percent to 0.3 percent.

Lastly, the trading volumes were thin as the Chinese market was closed on account of Mid-Autumn Festival.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 54.28 points to 7,250.52.