Global Bond Market Turmoil Sparks Concerns Over NZ Economy
The global bond market is experiencing turmoil, with US Treasury Bond yields reaching their highest level since 2006. The benchmark 10-year yield has increased from 4.92% to a high of 5.22%, and is now at 5.17%. This mayhem in the global bond markets has implications for New Zealand's economy.
According to Roger J Kerr, the RBNZ ignores exchange rate depreciation at their peril. The NZD/USD exchange rate has dropped to 18-month lows at 0.5660 due to a stronger US dollar and independent selling caused by the RBNZ's 'go slow' message on local interest rate increases.
The forces driving up US Treasury Bond yields include global bond investors reducing their weighting in US Government Bonds, hedge fund speculators aggressively selling bond futures, and domestic bond investors preferring high-yielding corporate bonds. Fears of political interference from Trump in the Fed's decision-making process may also be contributing to the increase in yields.
The RBNZ's actions have a direct impact on the NZD/USD exchange rate, but they often blame international developments for currency movements. Central banking requires knowledge of how decisions and words will affect foreign exchange and interest rate markets.