The yield on the 10-year New Zealand government bond yield extended losses and fell to a record low of 0.541% on Wednesday after the Reserve Bank of New Zealand (RBNZ) said negative official cash rate (interest rate) could become an option in the future.
The central bank left interest rates unchanged at 0.25% but expanded the Large Scale Asset Purchase (LSAP) program potential to $60 billion from $30 billion. That move was widely expected and priced in. The 10-year yield was already down over four basis points while heading into the rate decision.
With RBNZ opening the doors to deeper rate cuts, markets are likely to begin pricing in prospects of rates falling below zero by November, as forecasted by Westpac. As a result, bond yields could suffer deeper declines in the near future.
RBNZ's dovish talk on rates could elicit a similar response from its Australian counterpart, the Reserve Bank of Australia.
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