New Zealand bonds close narrowly mixed ahead of Governor’s speech

The New Zealand government bonds closed narrowly mixed on Monday as investors await the Reserve Bank of New Zealand Governor Graeme Wheeler’s speech, in an attempt to predict the central bank's likely step to ease interest rates in the upcoming monetary policy meeting.

The yield on benchmark 10-year bond, which moves inversely to its price, fell half basis point to 2.245 percent, the yield on 7-year note also dipped half basis points to 1.990 percent and the yield on short-term 2-year note ended 1 basis point higher at 1.880 percent.

Last week, the Reserve Bank of New Zealand in its unscheduled economic outlook update concluded that a further policy easing will be required as decline in the exchange rate is needed.

The central bank added the monetary policy will continue to be accommodative and long-term inflation expectations are well anchored. Also, the NZ dollar rate is holding down tradable good inflation and currency markets make it difficult to meet inflation objective.

Lastly, the surprised assessment mentioned that more easing is possibly needed to return inflation to target as many uncertainties hover around the country’s economic outlook.

We foresee that the RBNZ will go for further rate cuts to counter deflationary pressure if inflation fails to revive, which is way below the target range of the central bank.

“We now expect an OCR cut in August, with the RBNZ signalling that further monetary policy easing is in the offering to offset the deflationary impact of TWI strength, and that the housing boom will primarily be dealt with via macro-prudential policy,” said ANZ economists in a research note.

In addition, investors will remain keen to focus on the central bank governor Wheeler’s speech (scheduled to take place on Monday at 07:30 GMT) and trade balance data. Meanwhile, the New Zealand’s benchmark S&P/NZX 50 Index closed up 91.26 points to 7,317.31.