Investors Buy New Zealand Bonds as Yields Hit 5%

Investors are increasing their holdings in New Zealand government bonds, betting that sluggish economic growth will force the Reserve Bank of New Zealand to slow its cycle of interest-rate hikes. This bullish sentiment comes as 10-year government bond yields have exceeded 5%, the highest level since 2023. Asset managers, including Insight Investment, argue that current market pricing overestimates future hikes and that yields above 5% represent strong value.

Internal views at the central bank remain divided. Assistant Governor Karen Silk suggested the next rate hike may not occur until December, while board member Prasanna Gai indicated the policy rate may already be in neutral territory. Despite these views, inflation remains above the 1-3% target band and is not expected to return to the 2% midpoint until early 2028.

Finance Minister Nicola Willis is monitoring the situation following a surge in international bond prices, noting that the 30-year U.S. Treasury bond has also reached its highest point since 2007. Willis stated that the upcoming Pre-election Economic and Fiscal Update will account for these trends, warning that current market volatility presents a downside risk of increased borrowing costs for the government.