New Zealand-US 10-year bond yield spread turns negative ahead of RBNZ

• Dovish RBNZ expectations weigh over the NZ-US yield spread. 
• RBNZ is expected to announce an increase in the size of bond purchases on Wednesday.

The spread between the 10-year New Zealand and US government bond yields has turned negative for the first time since March 2. 

At press time, the benchmark bond yield spread is seen at -0.08 basis points, having topped out at 66 basis points on March 23 and dropped below zero on May 8. 

The slide from highs seen in March could be associated with the risk reset in the financial market and the growing talk of negative rates in New Zealand. Big banks like Westpac expect the Reserve Bank of New Zealand (RBNZ) to cut rates below zero in November. 

If the central bank mentions the possibility of negative rates on Wednesday, the spread will likely drop further, pushing the New Zealand dollar lower. The central bank is widely expected to keep rates steady at 0.25% and double the bond purchases from the current $30bn to $60bn.

The central bank reduced rates to a record low of 0.25% and launched a quantitative easing program in March to help contain the economic fallout from the coronavirus outbreak.