Amova: long-dated NZ govt bond yields reward investors

New Zealand 10-year government bond yields currently are significantly higher than neutral and they have rarely stayed as high for any length of time, which means investors are “pretty well compensated” for holding these bonds at the moment.

That’s the view of Amova Asset Management fixed interest manager Matthew Johnson.
Longer-term inflation expectations are well anchored, and inflation is being driven by external shocks, such as the war in the Middle East, and it isn’t domestic demand that is driving inflation, Johnson told an Amova investment lunch in Wellington on Tuesday.

That means that bond yields on bonds maturing between five and 10 years are attractive now, Johnson said.

Headline inflation has exceeded the Reserve Bank’s 1% to 3% target for three quarters so far, but excluding items the central bank cannot control, such as oil and food prices and council rates, Inflation has ranged between 2.1% and 2.9% for more than two years.