The end of the “Great Moderation”?
Most economists expect historically high inflation to moderate over the next year, but the near-term outlook is uncertain.
Over the long term, changing structural inflation forces may create even greater uncertainty for investors.
The possible end of the great moderation – the period of relatively benign economic cycles - that has prevailed for most of the past 40 years - may see fixed income investors seek greater compensat...
Implications of an Evergrande default
- Some form of default looks inevitable for debt-laden Chinese property developer Evergrande
- We examine why markets don’t hold concerns that a default will put sand in the global financial cogs
- However, concerns are spreading to other developers which could increase volatility
The further consequences of lower interest rates
- As market interest rates in New Zealand decline further, additional consequences are revealing themselves. The theme of accelerating progression of longer-term trends continues.
- Wholesale interest rates continue to decline, with the Government’s PREFU announcement being the catalyst this week, due to a $10bln reduction in the size of the Government Stock issuance program for the 2020/21 fiscal year. The five-year New Zealand Government bond now trades at a negative yield, joining the one and two year maturities. 35% of outstanding nominal New Zealand Government Stock is now in the “negative rate” club.
- This week the Auckland Council issued the longest maturity bond in New Zealand for more than fifty years. The ability of a council to issue 30-year bonds in the domestic market is a notable milestone in the ongoing development of the New Zealand capital market.
Bond market takes note of RBNZ dovish shift
- We think the RBNZ reaction function has become more dovish with lower and flatter yield curves the primary goal in the face of persistent health-related downside economic risks.
- The Bank expanded its QE programme by more-than-expected last week from $60bn to $100bn and said it is prepared to implement a negative OCR alongside direct lending to retail banks at interest rates close to the OCR, if required.
- Interest rates have fallen in response, but NZ government bonds now look expensive versus their global peers and a sharp rise in breakeven inflation rates suggest that economic risks may lie in both directions.
Monitoring the US leveraged loan market
Investors have their noses to the wind for the source of the next crisis. The terrifyingly titled pile of debt, known as “leveraged loans”, could be starting to pong. At Harbour we remain vigilant, monitoring the US market, but taking comfort in the structure of markets down under.
Leveraged loans are simply private market borrowing by sub-investment grade companies. The US leveraged loan marketplace provides well over $US...READ MORE
Calling time on TDs?
Traditionally, term deposits have been a popular strategy for many retirees and Kiwis who weren’t quite sure about how to choose or access other investments.
What has happened with term deposits?Around 11-12 years ago, before the Global Financial Crisis (GFC), New Zealand’s Official Cash Rate was sitting at 8.25%. The official cash rate tends to influence the rates which banks offer on, amongst other things, Term Deposits. A...