New Zealand bonds close nearly flat in subdued trade; next week’s Q3 GDP in focus

The New Zealand government bonds closed nearly flat Friday as investors remain sidelined in any big deal ahead of the Christmas holidays. Also, markets will remain keen to focus on the delayed third-quarter gross domestic product (GDP) scheduled to be released next week, which was postponed because of powerful earthquakes last month.

The yield on the benchmark 10-year bond, which moves inversely to its price, closed ½ basis point lower at 3.43 percent, the yield on 7-year note ended flat at 2.97 percent and the yield on short-term 2-year note slid 1/2 basis point to 2.26 percent.

The Federal Open Market Committee increased the fed funds rate to a 0.50-0.75 percent range, as widely expected. The statement noted that information received since the November meeting indicates that the labour market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year.

Also, the new projections showed that the central bankers expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates.

On Monday, Bill English has been elected by the National Party as the new Prime Minister of the country, with Paula Bennett being sworn-in as his deputy. The new PM will join office post-Christmas; however, there has been no decision yet over the appointment of the new Finance Minister.

Moreover, the Reserve Bank of New Zealand Governor Graeme Wheeler in its recent speech said that the interest rates are probably low enough to return inflation to his 2 percent goal amid a robust economic expansion. He said the exchange rate is higher than the economic fundamentals would suggest is appropriate, but the global forces that have boosted the kiwi dollar may be abating.

Wheeler also reiterated that the bank remains concerned about the booming housing market, which has been fuelled by record-low borrowing costs. House-price inflation is much higher than desirable and poses concerns for financial stability.

Lastly, the market is likely to receive the third-quarter balance of payment (BoP) and gross domestic product (GDP) data next week as the Statistics New Zealand postponed its release, following two powerful earthquakes in November.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 11.62 points to 6,760.24. While at 05:00 GMT, the FxWirePro's Hourly New Zealand Dollar Strength Index remained highly bearish for second straight day at -114.87 (lower than -75 represent a bearish trend).