Inflation pushes bond yields to new highs

New Zealand stocks were generally lower on Thursday as market interest rates hit new highs after surprisingly strong inflation data in Australia raised the odds of interest rate hikes.

Thursday, October 28, 2021, 6:41 p.m.

by BusinessDesk

“The domestic rate market has been rocked by the shock of Australian inflation,” said Jason Wong, BNZ interest rate strategist.

Data showed inflation rose 0.7% in the September quarter, putting annual inflation within the Reserve Bank of Australia’s target range of 2.1%.

This has seen the yield curve flatten significantly as rates across the board hit new highs for the current cycle, he said.

The yield on a 2-year government bond is now comfortably above 2% – vs. negative yields around the same time last year – and 10-year bonds are returning 2.6%, down from 0, 5% a year ago.

Rising bond yields are a real headwind for the S & P / NZX 50 Index, which fell 50 points, or 0.4%, to 12,970.99 on Thursday. Turnover was $ 135 million.

Most stocks are priced against risk-free interest rates, like government bonds.

Over the past week, analysts at Craigs Investment Partners have lowered both My Food Bag and Eroad due to an increase in risk-free spot rates, as measured by the yield on 10-year bonds.

The New Zealand equity market is disproportionately populated by yield sensitive sectors such as real estate and utilities.

Forsyth Barr analysts today reiterated their negative stance on the power sector due to “regulatory risk and rising interest rates.”

Genesis Energy was down 2.3% to $ 3.20, Mercury NZ was down 1.9% to $ 6.05, and Meridian Energy fell 1% to $ 4.98.

Air New Zealand shares fell 2.4% after President Therese Walsh said the airline expects to have withdrawn $ 900 million from its government loan by February.

That would leave the airline with just $ 600 million in emergency funding and increase pressure to complete its twice-delayed $ 1 billion capital raise.

Sky Network Television was left unchanged at $ 1.88 as it reiterated it was on track to record its first annual revenue increase in more than five years.

The pay-TV company is hoping to increase revenue to $ 35 million with the hopes that streaming revenue will eclipse the drop in Sky Box revenue.

The New Zealand dollar traded today at 71.60 cents US, unchanged from yesterday, but higher from 69.76 cents a decade ago.

Global forex traders are mostly obsessed with inflation, which is good for the kiwi as the Reserve Bank of New Zealand is being trusted to raise rates to keep it in check, Wong said.

Tags: Market Close

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