Latest / Best of Business / Jeremy Hutton: Milford Asset Management expert on bond yields and interest rates going up

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Jeremy Hutton: Milford Asset Management expert on bond yields and interest rates going up · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk ZEDB. Follow
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  Speaker 2: Jeremy Husson Wilfed Asset Management is with us Alo.
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  Speaker 1: Jeremy.
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  Speaker 3: Hi, here the here you going?
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  Speaker 2: Yeh, I'm good, thank you. As we've discussed on the
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  Speaker 2: show in the last few days, bond yields and interest
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  Speaker 2: rates as spiking globally, so our financial market's starting to
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  Speaker 2: get a bit nervous.
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  Speaker 3: Yeah, they are getting into slightly nervous territory. And for example,
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  Speaker 3: the very important thirty year US government bond that has
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  Speaker 3: now got the highest interest rate attached to it since
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  Speaker 3: pre GFC in two thousand and seven, so a little
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  Speaker 3: bit ominous there. But the US government it doesn't help
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  Speaker 3: itself that much with its astronomical budget deficit around seven
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  Speaker 3: percent of GDP and with no end in sight. But
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  Speaker 3: you're right, it is not unique to the US. We're
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  Speaker 3: seeing yield spike all over the world linked to the
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  Speaker 3: Iran crisis, but it will be putting huge pressure on
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  Speaker 3: government budgets everywhere, and I think we're going to see
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  Speaker 3: that here in New Zealand too, just given the higher
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  Speaker 3: interest costs that this is going to put on governments.
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  Speaker 2: So bond prices and a lot of key we save
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  Speaker 2: a portfolios will be looking a little bit sad right now,
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  Speaker 2: will they?
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  Speaker 1: Yeah, they will.
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  Speaker 3: So bond prices they move inversely to bond yields, So
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  Speaker 3: bond yields up means bond prices down, and these are
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  Speaker 3: going to be hurting in many key we save A
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  Speaker 3: portfolios right now. And as I mentioned, triggered by the
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  Speaker 3: Iran situation and the corresponding fuel cost spike, and it's
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  Speaker 3: just the amount of time that this disruption has lasted,
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  Speaker 3: and the higher risks of entrenched inflation in the bond
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  Speaker 3: market is reflecting this. And then the Trump g meeting
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  Speaker 3: last week that was potentially seen as an off ramp
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  Speaker 3: but unfortunately hasn't delivered much on that front at this point.
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  Speaker 2: Now, what's going on with the equity market, So they're
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  Speaker 2: largely shrugging these risks off.
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  Speaker 3: Yeah, it's pretty amazing they have so far. In direct
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  Speaker 3: contrast to the bond market, the U S equity market
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  Speaker 3: has obviously been in like a huge, huge run since
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  Speaker 3: the Uranian ceasefire announcement last month, and it's mostly been
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  Speaker 3: driven by this AI narrative in certain technology stocks, not
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  Speaker 3: all of them. But the thinking here is that AI
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  Speaker 3: related companies are not going to be as exposed to
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  Speaker 3: Middle East and energy prices. But I think with the
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  Speaker 3: higher interest rates it is going to it's usually negative
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  Speaker 3: for equity markets, so it could potentially affect them eventually.
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  Speaker 3: But I think it's fair to say that there's plenty
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  Speaker 3: of other companies on the US exchange, non technology ones,
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  Speaker 3: and the main street US consumer I think they're going
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  Speaker 3: to be feeling the pinch pretty hard right now.
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  Speaker 2: Yeah, and what about New Zealand interest rates? Are we
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  Speaker 2: seeing the effects there as well?
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  Speaker 3: Yeah, we've seen wholesale rates in New Zealand go up
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  Speaker 3: and that's flowing through into mortgage rates as well. But
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  Speaker 3: we do a very important rbn Z decision next week.
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  Speaker 3: Doctor Brennan's comments will be very very closely followed. And
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  Speaker 3: she's in a tricky spot or they are in a
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  Speaker 3: tricky spot. There is really no no right answer here.
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  Speaker 3: And on one hand, it would be very brave to
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  Speaker 3: hike the ocr too aggressively given some of the demand
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  Speaker 3: and sentiment has fallen off pretty sharply in the local
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  Speaker 3: economy already. And then interest rates being hiked is just
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  Speaker 3: sort of kicking the economy while it's down. But then
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  Speaker 3: on the other hand, they do have to consider inflation
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  Speaker 3: and trying not to get that embedded again. Not helped
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  Speaker 3: by how long the Iranian situation has gone on. But
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  Speaker 3: at the moment the market is pricing about a twenty
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  Speaker 3: five percent chance of a hike, so not that high.
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  Speaker 3: But I think more interestingly is the four hikes that's
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  Speaker 3: assumed later this year and the track that the RBNS
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  Speaker 3: had put out, so I think depending on the tone
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  Speaker 3: of her comments, that could change pretty rapidly.
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  Speaker 2: Jeremy, it's good to talk to mate always is. Thank
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  Speaker 2: you so much for the expertise. It's Jeremy Hutton, Milford,
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  Speaker 2: acidt Management.
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