You can short.. but its like holding something radioactive (of the kind Putin is familiar with).
Find some sector or stock that has peaked and is destined to go down from inflation + rates like biotech.
Printable View
You can short.. but its like holding something radioactive (of the kind Putin is familiar with).
Find some sector or stock that has peaked and is destined to go down from inflation + rates like biotech.
Would anyone lend to Jacinda at lower rates than Uncle Sam?
Look at NZ bond yields and trend them against the US. They trade in lockstep with an appropriate spread.
No way can US rates rise and not feed through to ours, not unless big Grunta calms down and Orr buys every last one
We have our own pool of term deposits funds of $ 180 Billion ...if mortgage take drys as its happening now and it becomes cheaper to borrow local then why will market or banks look to borrow from overseas .
This is not happening for the first time ...so it will play out in similar ways ...there are market forces at play ...demand and supply pressures will decide what levels economy can bear ...Japan is a shining example
NZ bond yields have jumped already this morning to 4.11 from 4.01 yesterday
A few touch points to keep in mind when considering financial 'cause & effect' relationships; especially correlations with the USA money market...
- Despite the attempt of some (Chinese etc) to dance to the beat of their own financial drums, over 70% of the transactions that occur on the planet are still in USD.
- The US Fed has continued to massively expand their Balance Sheet. This accelerated exponentially pre-Covid (from Sept 2019) AND further from when the 'Covid crash' commenced.
- Despite current 'fed talk' of entering a period of QT, M2 (Money supply) is still increasing at a great speed of knots.
- As an aside; meanwhile 'velocity of money' has continued to decelerate, and could be best described as anemic.
- An absolute monster lurks:Total credit (e.g. interest rate swaps) & currency derivatives in the US now exceed US$600 TRILLION.
- For decades NZ has, & continues to, source the majority of it's debt (public & private) from overseas. With the clear majority of that still coming from......yes you've got it, the USA.
- A key function feeding into Bond pricing is risk. The higher the perceived risk, the higher the expected IR. With the NZ economy being like a pimple on the side of an elephant....need I write more.
- Exacerbating the situation, Robertson decides to take NZ on a massive debt 'gorging session'. In fact with such loose abandon, that we could 'proudly' claim to be in the top 3 globally (as a % of GDP) for Balance Sheet expansion - reacting to Covid.
So is there a meaningful correlation between US & NZ money markets? Absolutely!
Furthermore, as NZ's perceived risk profile deteriorates (eventually flowing through to S&P etc country credit ratings), that Interest rate premium will continue to lift. Remembering also, for each cent the NZD falls, the country's funding costs increase.
Though given inflation has been 7% and in 2020 you could lock in a 1% 10 year bond you're better off in real terms by 6%.
I think much more should have been borrowed in 2020. Though it should now be avoided where possible, even if it's real terms positive for now. The opportunity is gone.
NZ will be in surplus in 2024.. something I believe will happen since tax rates haven't changed much for 20 years.