New Zealand yields hit highest since 2024 on outlook cut, oil

[MELBOURNE] New Zealand’s benchmark bond yields rose to the highest since 2024 after the country’s AA+ credit rating outlook was cut to negative by Fitch Ratings.

Yields on 10-year bonds jumped 11 basis points to 4.85 per cent, the highest since May 2024. Yields on policy-sensitive two-year notes had a similar move to 3.71 per cent, the highest in over a year. The New Zealand dollar slipped 0.2 per cent to 58.20 US cents amid a broadly stronger greenback.

Fitch said a substantial debt reduction is becoming more difficult as fiscal consolidation has been delayed over the past few years. New Zealand’s debt-to-GDP ratio has also climbed over the past six years after the economy was buffeted by a number of shocks and may hit 56 per cent in fiscal year 2027, Fitch said, well above the agency’s forecast when it upgraded the country’s rating in 2022.

Fitch’s decision adds further pressure to the bonds as yields climbed late last year due to an economy that had been showing signs of improvement prior to the Iran war, prompting traders to anticipate a hawkish pivot by the central bank later in 2026. The spike in crude oil prices has fanned further inflation fears and caused traders to price at least two Reserve Bank of New Zealand rate hikes this year, according to data compiled by Bloomberg.

Global bonds have come under renewed pressure as the conflict in the Middle East shows no sign of de-escalation. Ten-year Treasury yields surged 13 basis points on Friday (Mar 20) while their Australian equivalents climbed by the same amount in early trading on Monday.

“Bond markets everywhere are under extreme stress”, and the outlook cut may get “lost in the mix”, said David Croy, a rates strategist at ANZ Group Holdings in Wellington. “It is nonetheless a shot across the bow for the government and markets.” BLOOMBERG