New Zealand bonds slump at close after Q3 GDP cheers market expectations

New Zealand government bonds slumped at the time of closing Thursday after the country’s September quarter GDP was stronger than what market had expected, but that was almost an incidental detail in today’s release. Stats NZ’s annual benchmarking of the national accounts has led to some major upward revisions to the reported rate of growth over the last few years.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped 2 basis points to 2.77 percent, the yield on 20-year climbed 1-1/2 basis points to 3.31 percent while the yield on short-term 2-year ended 1 basis point lower at 1.91 percent.

The economy expanded by 0.6 percent q/q in Q3, which was in line with consensus expectations. However, on the back of some meaningful historical revisions, annual growth, at 2.7 percent y/y, was considerably stronger than expected.

In the quarter itself, 12 of the 16 production-based industries recorded growth. The main lift came from a broad-based recovery in construction, which bounced 3.6 percent q/q after falling over the prior two quarters. Led by professional, scientific and administrative services, health care services and arts and recreation services, services sector activity expanded 0.6 percent q/q. Conversely, primary production fell 0.4 percent q/q, led down by weaker agricultural production.

Expenditure GDP rose a stronger 0.9 percent q/q, again outperforming its production-based equivalent after earlier underperforming. Private consumption rose a respectable 0.8 percent q/q, while general government consumption was strong at 2.5 percent q/q. Residential investment (3.3 percent q/q) was strong, while other investments were a little more mixed. Net exports recorded a 0.5ppt drag on growth, while inventories also dragged on growth (0.9ppts) for the third consecutive quarter.

Meanwhile, the NZX 50 index closed 0.23 percent higher at 8,364.44, while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained slightly bullish at -89.17 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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