New Zealand bonds slump at close after Q1 consumer price inflation tops market expectations

New Zealand government bonds slumped at the time of closing Thursday after the country’s consumer price inflation (CPI) for the first quarter of this year, topped market expectations, which added bearishness to the safe-haven debt market.

The yield on New Zealand’s benchmark 10-year Treasury note, which moves inversely to its price, jumped 2-1/2 basis points to 2.86 percent, the yield on the long-term 20-year note edged tad higher to 3.44 percent and the yield on short-term 2-year closed 1/2 basis point up at 1.96 percent.

Headline CPI rose 0.5 percent q/q in Q4, which was above consensus of a 0.4 percent lift, but in line with the RBNZ’s latest forecast. This saw annual inflation drop back to 1.1 percent y/y from 1.6 percent in Q4 as the strong 2017 Q1 print of 1.0 percent q/q dropped out. Tradable prices fell 0.1 percent q/q (-0.4 percent y/y), while non-tradable prices rose 0.9 percent q/q (2.3 percent y/y).

"Overall, today’s outturn provided little evidence to suggest that inflationary pressures are broadening outside of the housing, but we expected that. Non-tradable inflation ex-housing rose 1.2 percent q/q, which on first blush is a respectable rise, but on an annual basis was up just 1.7 percent y/y, down from 1.9 percent in Q4. In seasonally adjusted terms, non‑tradable inflation rose 0.5 percent q/q, unchanged from Q4 last year. We suspect a broader lift in inflation is likely to remain absent until we see a meaningful lift in wage growth," ANZ Research commented in its latest report.

Meanwhile, the NZX 50 index closed 0.04 percent higher at 8,373.03, while at 06:00GMT, the FxWirePro's Hourly NZD Strength Index remained slightly bullish at 87.68 (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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