NZ shares fall as bond yields climb

New Zealand shares fell Monday, after making gains last week, as long-term bond yields in the United States climbed on strong employment data.

Monday, August 9th 2021, 7:10PM

by BusinessDesk

The S&P/NZX 50 Index fell 69.17 points, or 0.5%, to 12,700.83. Turnover was $229 million.

The benchmark index was up 1.4% over last week even as the yield on a NZ 10-year government bond rose 10 basis points over the same period.

Bond yields took another step higher over the weekend –– rising to 1.66% in NZ –– as the US 10-year rate moved sharply higher, to 1.30%, after a stronger-than-expected US labour market report was released on Friday night.

As short-term bond yields are more influenced by central bank interest rates, 2-year bond yields were little changed.

The July nonfarm payrolls report was a strong one. The reaction in both the interest rate and currency markets to payrolls was immediate. The US 10-year rate pushed 7bps higher to a two-week high.

BNZ interest rate strategist Nick Smyth said bank stocks in the US rose as they benefited from the steeper yield curve which helps expand their margins.

Tech stocks, on the other hand, are more sensitive to higher long-term rates and were “generally weaker alongside ‘bond proxies’ such as utilities stocks”.

“Equity markets saw rotation back to previous reflation trade winners and away from big tech stocks, a reversal of recent trends,” Smyth said.

NZ stocks followed a similar trend with falls from utility stocks, such as Meridian Energy which fell 1.8% at $5.165, and Genesis Energy which was down 1.9% at $3.32.

Listed tech stocks with exposure to the US were also among the biggest falls on the market today. Pushpay Holdings dropped 1.8% to $1.64 and Vista Group International fell 1.7% to $2.26.

The Australian banks were among those potentially benefiting from the steeper yield curve, as well as ongoing share buyback programs.

ANZ Bank, which is in the process of buying back A$1.5 billion of shares, was up 1.6% at $30.25 today, while Westpac Bank rose 1.6% to $30.25.

The New Zealand Refining Company continued to gain ground after shareholders approved a plan to convert the site into an import terminal, it was up 4.7% to 90 cents today, while 15% shareholder Z Energy gained another 1.6% to $3.10.

In currency markets, the NZ dollar lost some ground against the US dollar after the strong jobs report but continues to trade above 70 US cents.

The kiwi dollar was trading at 70.10 US cents at 3pm in Wellington, up from 70.44 cents on Friday.

The trade-weighted index was at 74.52 from 74.66 last week. The kiwi traded at 95.37 Australian cents from 95.35, traded at 77.27 yen from 77.39 yen, 59.64 euro cents from 59.56 cents, 50.58 British pence from 50.61 pence, and 4.5437 Chinese yuan from 4.5526 yuan.

Tags: Market Close