Australia and New Zealand bond yields jump as inflation jumps

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Australia and New Zealand bond yields jump as inflation jumps

- Australian and New Zealand bond yields jumped after the smaller nation reported faster inflation than economists predicted, fanning bets on tighter monetary policy.

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The apex of Australia's three year bonds rose as much as 16 basis points to 0.75%, the highest since February 2020. The five-year yield in New Zealand surged 15 basis points to 1.97%, a level not seen since January 2019.

The global theme is that higher inflation will likely be less transitory than anticipated earlier amid elevated commodity prices, said Andrew Ticehurst, rates strategist for Nomura Holdings Inc. in Sydney. Strong retail sales data for the third quarter on Friday and much stronger than expected CPI data in New Zealand today - on Thursday are encouraging this trend. New Zealand overnight-indexed swaps signaled a 20% chance that the central bank will raise its official cash rate by 50 basis points at its November meeting compared with odds of 92% on Thursday for an extra 25 basis points. Consumer prices in the country jumped 4.9% in the third quarter from a year earlier, government said Monday, surpassing the median forecast of economists of 4.2%.

For me, it s more about the brute strength of the upside surprise to the headline data rather than the details, even though they were also strong, said David Croy, a senior strategist at Australia New Zealand Bank Ltd. in Wellington This speaks to more hikes and a higher terminal OCR, and to the extent that the RBNZ is more likely to hike to keep inflation expectations well-anchored. Australian yields climbed more as vaccination rates rise and the authorities start to remove movement restrictions in many parts of the country. The nation s second biggest city in Australia will end its months-long lockdown on Thursday night.

Increasing vaccination rates and progressive re-opening of the patients are contributing to the increase in yields, Nomura s Ticehurst said. The global inflation theme is also leading to significant adjustments in positioning with investors popping out of long positions and commodity trading advisors and system traders initiating and adding to short positions, he said.

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