Higher bond yields push equity prices lower

The NZX 50 fell on Thursday with rising interest rates beginning to take some heat out of the share market as investors try to get ahead of tightening monetary policy.

Thursday, February 4th 2021, 6:05PM

by BusinessDesk

The S&P/NZX 50 Index dropped 99.1 points, or 0.7 percent, to 12,992.14. Within the index, 28 stocks fell, 15 rose and seven were unchanged. Turnover was $152 million.

NZ government bond yields and swap rates took another step higher today, with the 2-year swap rate now at 0.35 percent and the 10-year swap rate at 1.42 percent — up almost 16 basis points from Wednesday.

Yesterday’s surprisingly strong employment data triggered the most recent move, as it looks more likely the Reserve Bank of New Zealand could tighten monetary policy.

BNZ senior market strategist Jason Wong said the strong economic data had set the scene for “an interesting policy update” from the RBNZ on Feb. 24.

“Someone awakening from a coma might wonder why the RBNZ would be trying to suppress interest rates at this point,” he said.

Grant Davies, an investment adviser at Hamilton Hindin Greene, said higher interest rates would cause investors to revalue assets.

“The prospect of higher rates means the relative attractiveness of equities is not quite as high,” he said.

Internet utility firm Chorus led the market lower, falling 3.8 percent to $8.38 although on a light volume of just 170,000 shares.

Auckland International Airport had more significant trading, dropping 2.6 percent to $7.21 with 2.6 million shares changing hands. Air New Zealand also fell, down 1.8 percent at $1.61.

Infrastructure investment firm Infratil dropped 1.4 percent to $7.345, despite reporting there had been “strong interest” in its stake in Tilt Renewables with multiple non-binding offers from potential buyers.

Outside of the top 50 index, shares in Tilt rose 1.4 percent to $6.37. Another Infratil-owned asset Trustpower rose half a percent to $8.89, it is considering a sale of its retail business.

Shares in the Warehouse Group climbed 1.6 percent to $3.16 on the news it will pay a 5 cent per share special dividend following a stronger-than-expected trading performance, in particular over the critical Christmas period.

Pushpay Holdings posted the day’s biggest gain, up 1.2 percent at $1.75.

The NZ dollar had been boosted by the surprisingly strong employment, but lost some ground overnight after peaking at 72.25 US cents on Wednesday afternoon.

The kiwi dollar was trading at 71.92 US cents at 5pm in Wellington, down from 72.13 cents yesterday.

The trade-weighted index was at 74.86 at 5pm, from 75.03 yesterday. The kiwi traded at 94.32 Australian cents from 94.76 cents, 75.58 yen from 75.74 yen, 59.83 euro cents from 59.90 cents, 52.83 British pence from 52.77 pence, and 4.6447 Chinese yuan from 4.6562 yuan.

Tags: Market Close