New Zealand long-term bonds close flat in muted trading; 2-year yields plunge on hovering political uncertainties

The New Zealand long-term bonds ended flat Monday as investors remained sidelined in any major trading activity amid lack of sufficient economic data through the day. However, the benchmark short-term 2-year bond yields plunged in the face of hovering political uncertainness within the NZ economy over the formation of the new coalition government after a long spell of inactivity post the elections on September 23, in which no clear outright majority was achieved by any political party.

At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, remained flat at 3.00 percent, the yield on the 20-year note rose 1/2 basis point to 3.55 percent while the yield on short-term 2-year slumped 4-1/2 basis points to 2.03 percent.

Details of the new government’s policy direction and priorities are emerging. Lifting ‘well-being’ is clearly a focus, and the government will be more ‘active’ in a number of areas to achieve that. Measurement of progress will be key if money is not to be simply poured down the sink.

The challenge will be getting buy-in from businesses (a sustained hit to business sentiment would have negative growth implications) as well as hitting fiscal targets; the Treasury’s growth numbers are too high and there appears to be little in the kitty for initiatives beyond education and health.

"Concern over changes in the way the RBNZ will be operating look overblown too. We still see growth holding around 2-1/2-3 percent on average," ANZ Research commented in its latest report.

Meanwhile, the NZX 50 index jumped 0.73 percent to 8,143.98 at the close, while at 05:00GMT, the FxWirePro's Hourly NZD Strength Index remained neutral at -65.01 (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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