NZ government bond yields fall to record low as euro woes stoke flight to safety

Thursday 31st May 2012

The yield on New Zealand's benchmark 10-year government bond fell to a record low as investors around the world look for safer places to park their cash amid fears Europe's sovereign debt crisis may escalate.

The yield fell 20 basis points to 3.45 percent, having shed almost 1 percentage point from its peak at 4.36 percent in late March. The yield is now lower than the 3.87 percent level plumbed in the depths of the global financial crisis in early 2009, according to Reuters data.

A highly indebted Spanish banking sector and the prospect of Greece being forced out of the euro-zone stoked demand for US Treasuries, with the yield on the US benchmark 10-year note falling 1 basis point to a record low 1.61 percent.

"The expectation is for a coordinated effort by central banks to push yields lower," said Imre Speizer, market strategist at Westpac Banking. "Maybe 1.65 percent in the US is going to 1.3 or 1 percent - that sort of expectation is what is driving yields."

New Zealand businesses expect the yield on 10-year government bonds to be about 4.1 percent at the end of March next year, according to the Reserve Bank's survey of expectations, published last week.

The record-low yield comes the same day New Zealand's Debt Management Office sold $100 million of bonds maturing in 2023, which was more than five times overbid. The auction attracted 39 bids worth $519 million, and the bonds were sold at an average yield of 3.45 percent. Speizer said the yield on the 2023 bond traded at a record low 3.42 percent today after the "big bid in the tender."

BusinessDesk.co.nz

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