NZ bonds close modestly lower as food prices post biggest monthly gain in three years

The New Zealand government bonds closed modestly lower Tuesday after recent data showed that the country’s food prices, which account for about 19 percent of the consumer price index (CPI), posted the biggest monthly jump in three years.

Also, investors remain focused on the second quarter gross domestic product (GDP) figure, which is scheduled to be released on Wednesday 04:15 GMT.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 1/2 basis point to 2.485 percent, the yield on 7-year note also ended 1/2 basis point higher at 2.160 percent and the yield on short-term 2-year note climbed 1/2 basis point to 1.960 percent.

New Zealand August food prices jumped 1.3 percent m/m, from down 0.2 percent in July. Food price increased a seasonally adjusted 1.2 percent in August, snapping three months of cheaper goods, and led higher by a 1.7 percent rise in fruit and vegetable prices, Statistics New Zealand said. The monthly spike in produce prices was driven by seasonally higher prices for tomatoes, lettuce and cabbage, while majorly influenced by record high banana prices, which climbed twenty-two percent. Banana prices were at their highest since the series began in 1949.

Moreover, the upcoming GDP data of New Zealand is expected to indicate that the economy remained in sound shape in the second quarter. Following a decent expansion of 0.7 percent in the prior quarter, the economy is projected to have expanded 1 percent in the June quarter, said Westpac in a research note. This is likely to push the annual 2016 growth to 3.5 percent, the most rapid pace since 2014.

Construction is likely to have added the most to the second quarter growth again; however, gains are expected to be quite widespread throughout sectors. Construction is expected to have grown 4.1 percent in the second quarter. The agricultural sector seems to have performed better in the June quarter as meat and milk production recovered following a weaker starter to 2016 due to weather-related concerns.

Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed down 30.52 points to 7,249.24.