By BRIAN FALLOW
Debt markets rallied yesterday, propelled first by what they took to be a dovish statement by Reserve Bank Governor Dr Don Brash, and then by weaker-than-expected Australian inflation data, seen as paving the way for an interest rate cut across the Tasman.
As of Tuesday, the 90-day bill futures market was pricing in no change in the official cash rate in the March quarter, but cuts of 25 basis points in the June and September quarters.
However, yesterday's statement by Dr Brash, citing the worsening international outlook, stronger exchange rate and reduced risk of second-round inflation, was seen as shortening the odds of an easing, and sooner rather than later.
In relatively heavy trading the March contract settled up 12 points, giving an implied yield of 6.38 per cent, with similar moves in the June and September contracts to yields of 6.11 and 5.93 per cent, respectively.
Westpac economist Nick Tuffley said short bonds also rallied after the statement.
The 2002 bond rallied 8 or 9 points after the statement and a similar amount after the Australian CPI, bringing the yield down 18 points in all to 5.84 per cent.
"In all it was a bit of a 'buy bonds, wear diamonds' sort of day ... No hawkish utterances from the Reserve Bank of New Zealand and the market getting surer about a cut on February 6 by the Reserve Bank of Australia," Mr Tuffley said.
Aussies, Brash boost bonds
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