New Zealand bonds close tad higher despite mounting GDT prices index, economy continues to struggle from powerful earthquakes

The New Zealand government bonds closed marginally higher Wednesday as the economy is still reeling from the impact of powerful earthquakes. Also, investors did not react to the strengthening GDT auction prices, which climbed 4.5 percent in the overnight auction.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 3.100 percent, the yield on 7-year note ended nearly 1 basis point lower at 2.753 percent and the yield on short-term 2-year note slid 1 basis point to 2.125 percent.

The overnight Global Dairy Trade price auction prices rose for the seventh straight month by 4.5 percent to an average price of $3,519.  The market was expecting a 5-7 percent increase.

New Zealand has been struck by a powerful 7.5 magnitude earthquake on Monday morning with its epicentre located on the east coast of the country’s South Island. While the damage is still being assessed, analysts estimate rebuilding work could cost 2.5 billion NZ Dollar, reported The Business Times.

Further, the earthquake will disrupt business activity in the short term, but in most parts of the country activity is likely to return to normal in a matter of days. Also, the negative impact on consumer confidence and tourism numbers could last slightly longer, especially if (as seismologists expect) aftershocks continue in coming months.

Moreover, the Reserve Bank of New Zealand in its November monetary policy meeting released last Thursday, lowered the official cash rate (OCR) once again by 25 basis points, after easing in August, a move is taken for the seventh time since June 2015, in an attempt to boost the slow-moving economy.

However, developments over the past few months have been positive for the New Zealand economy, and the downside risks to the RBNZ’s view have diminished. We expect that the OCR will remain on hold for an extended period. However, longer term rates look set to rise from here.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 54.15 points to 6,824.58. While at 06:00 GMT, the FxWirePro's Hourly New Zealand Dollar Strength Index stood neutral at -57.65 (lower than -75 represents a bearish trend).