Australian treasuries are likely to absorb a potential oil-price shock, while those of New Zealand remain vulnerable as renewed tensions in the Middle East revive concerns that central banks may need to keep policy tighter for longer, according to RBC BlueBay Asset Management.
Malin Rosengren, portfolio manager for fixed income at the $153 billion Canadian asset manager, said Australian government bonds should prove resilient because the Reserve Bank of Australia has already raised rates significantly, leaving them less exposed to further inflationary pressures.
“Australian treasuries are more insulated from the global rates sell-off and should exhibit a relatively lower beta to global rates and oil moves,” Rosengren said.
“The RBA has already undergone aggressive tightening of monetary policy and is rather at a point where the bank is waiting for the lagged transmission to feed through into the real economy.”
New Zealand’s bond market, however, faces a more difficult outlook, with the economy still vulnerable to a renewed inflation impulse from higher energy costs.
Rosengren said rising oil prices could quickly intensify price pressures in the country, where inflation remains above target and the Reserve Bank of New Zealand has maintained a more hawkish policy stance.
“NZ treasuries are more vulnerable to renewed concerns over higher oil prices, which is the driving force behind market bets on a more hawkish Fed hike,” she said.
“Headline inflation is running above target, monetary policy remains accommodative after the RBNZ’s first hike of its tightening cycle to bring the OCR to 2.5%, and the RBNZ Board retains a hawkish bias under Governor Bremen.
“With headline inflation projected to continue higher towards 4% over the year there is little space for the Board to look through additional inflationary pressures.”
If the US Federal Reserve responds to higher oil prices with more aggressive monetary tightening, the RBNZ will likely follow to support the New Zealand dollar and contain further imported inflation.
“Therefore, NZGBs are likely to observe a high beta to oil and the Fed,” Rosengren said.