Investors Snap Up New Zealand Bonds, Betting on Cautious Rate Hikes by the Reserve Bank of New Zealand

(1) Some investors are snapping up New Zealand bonds, betting that weak economic growth will prompt the Reserve Bank of New Zealand to be cautious about raising rates, and extend the bonds' outperformance compared to their global counterparts. (2) Asset management firm Insight Investment prefers shorter-term bonds, believing the market's pricing of RBNZ rate hike expectations is too high. (3) Harbour Asset Management commented that these sovereign bonds also benefit from a steep yield curve, as well as restrained government spending compared to G10 peers. (4) These bullish bets emerged after New Zealand bond yields surged to multi-year highs last Friday, triggered by a spike in oil prices that fueled expectations for an October rate hike. (5) Before the latest upswing in crude prices, RBNZ officials had indicated a slowing pace of rate hikes, with the country's recovery from recession still uneven and fragile. (6) Traders are currently pricing in four more rate hikes by next August, on top of the two hikes by the Reserve Bank of New Zealand this year.