New Zealand government bond yields have been climbing since last year, tracking global trends amid inflation, fiscal concerns, and market uncertainty.
“New Zealand government bond yields have been rising since last year, reflecting the trend in overseas markets as investors demand more for their money against a background of heightened inflation risk, fiscal concerns and global uncertainty.”
A surge in Japanese 40-year bonds added to volatility. Prime Minister Sanae Takaichi’s plan to suspend Japan’s 8 per cent sales tax on food for two years had sparked concerns about Japan’s already high debt and big spending plans, while threats of more US tariffs had added volatility to world markets.
New Zealand’s 10-year government bond yields are around 4.6 per cent, up from 4 per cent last October. US 10-year Treasuries rose to 4.23 per cent over the same period. Matt Logan of Fisher Funds noted: “The domestic bond market was moving in line with overseas trends.”
The longer-term yields are rising despite the Reserve Bank lowering the Official Cash Rate to 2.25 per cent.
“But amongst traders and the like, the discussion is shifting from rate cuts to rate hikes – and soon,” according to Kiwibank commentary.
“Everyone looks at their mortgage rate as probably the main kind of interest rate that matters to them. With the OCR coming down… longer rates have gone up,” Logan said.
Higher yields are increasing borrowing costs for companies. “Corporate borrowers are facing higher funding costs – typically 1 per cent to 2 per cent higher than the New Zealand 10-year Government bond yield,” Logan said. “That’s going to hurt their balance sheets at a time when the New Zealand economy is yet to really feel the effects of a recovery.”
Global factors, including Japanese monetary policy, influence markets. The Bank of Japan left its official rate unchanged at 0.75 per cent in a move seen by the market as a “hawkish hold”.
“There are always at least 10 or 20 kind of potential black swan events that we think about that could potentially blow up markets one day… In any given year, it’s extremely unlikely that any of them will happen, but that is one of them that people talk about,” Logan said.