(Bloomberg) -- New Zealand’s benchmark three-year bond yield slid below zero for the first time on Wednesday as expectations rise for the central bank to take its key interest rate negative.
The nation’s April 2023 bond yield dropped as much as 6.5 basis points with mid-level yields touching -0.006%. Swap markets are already pricing for the Reserve Bank of New Zealand to cut by 50 basis points to -0.25% by the fourth quarter of next year.
The South Pacific country joins markets from Europe to Asia with negative yielding bonds. Yields on Japanese sovereign debt are negative out to the nine year maturity while in Germany the whole yield curve to 30-years is sub-zero.
The price moves Wednesday came as easing expectations were boosted by news that one prominent coronavirus vaccine study has been paused. The slide to zero had been gathering pace since the RBNZ expanded bond purchases on Aug. 12 and reiterated it was open to adopting negative interest rates.
RBNZ watchers have been dialing up their expectations, with ANZ Bank New Zealand and Bank of New Zealand forecasting a cut in benchmark rates to -0.25% in April 2021.
Governor Adrian Orr also said explicitly that policy makers want to get sovereign yields lower by expanding the asset purchase plans.
Read more: N.Z. Eyes Sweden as Roadmap for Negative Rates
The central bank has increased its bond-buying target to NZ$100 billion ($66 billion) from NZ$60 billion. In response to the global economic slowdown following the coronavirus outbreak, RBNZ has already cut the official cash rate by 75 basis points to 0.25%.
Should RBNZ go negative, it will join others including the Bank of Japan, Sweden’s Riksbank and European Central Bank in pursuing more extreme unconventional monetary policy.
(Updates headline, first paragraph, yield levels.)
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