Roger J Kerr says borrowers should be taking advantage of the recent pull-back in US long-term bond yields

By Roger J Kerr

The RBNZ struggled to find anything new to say on the economic/inflation outlook front last week.

They stressed their concerns about global financial and economic risks, however I am not sure that global geo-political or economic risks are any higher today than they have been over recent years.

There are always offshore risk events you could worry about, however how much do they directly impact on the NZ economy? Look back on the Brexit, Trump, oil and China risk events of 2016 that everyone (particularly the local media) fretted about and decipher what negative impact they had on the NZ economy? Very little in my view.

Dairy prices, immigration and city planning bureaucracy have a much larger impact on our economy and these are the issues the media and financial markets should be focussed on.

Immigrant inflows should remain strong this year whilst expanding NZ businesses are demanding skilled labour to meet their needs and have to go offshore to get it.

Across the skilled worker spectrum from panel beaters to nurses we have an aging workforce that is being replaced by immigrants as young New Zealanders train in other professions or just do not train in anything.

PM Bill English will need to counter the misplaced anti-immigrant political sentiment with innovative education schemes to entice the locals to train in skills our economy needs.

You cannot blame the businesses who are going offshore to get labour as they need to meet customer and shareholder expectations.

The outlook for construction and manufacturing sectors remains robust so the immigration pressures on the residential property market will remain. Albeit, the froth has come off the Auckland housing market due to slower Chinese investment inflows and LVR’s slowing the investment property momentum.

Whilst NZ short-term interest rates are going nowhere this year, borrowers should be taking advantage of the recent pull-back in US long term yields to extend the duration of their fixed rate swap portfolios.

The Trump spending pledges that caused the lift in US bond yields late last year may now have some question marks around them.

However, US inflation is rising and the Federal Reserve continues to increase US short-term rates. Thus US and NZ long-term interest rates will have to return to the same upward path. Borrowers have a window of opportunity that they should be tapping.

Roger J Kerr contracts to PwC in the treasury advisory area. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com