Australian three-year bond yields have jumped by up to 18 basis points, while five-year bond yields added some 10 basis points following the release of the latest consumer price index figures in New Zealand.

NZ’s CPI rose by 4.9 per cent in the third quarter compared to a year earlier and 2.2 per cent compared to the previous quarter, both the largest movements in more than a decade. 

The Reserve Bank of New Zealand and analysts had forecast an annual rise of 4.1 per cent and a quarterly rise of 1.4 per cent.

Commenting on the possibility of local impacts, Russel Chesler, head of investments and capital markets at VanEck, said that Australians should expect to see higher mortgage rates as a result of the bond yield movements. 

“The sharp jump in yields has steepened the Australian yield curve and could force the big banks to raise interest rates on fixed-term home loans as their funding costs rise, with the bond market also pricing in faster monetary policy tightening at the short end,” Mr Chesler said.

“Home borrowers can now expect the big banks to ramp up rates on three-year and five-year fixed loans in response to higher bond yields. The smaller banks will inevitably follow and this could come as a hit to home owners and home affordability plunging even more.”

Statistics New Zealand said housing costs were the main contributing factor to NZ’s inflation rise. Housing and household utilities rose by 2.6 per cent on a quarterly basis, including 4.5 per cent higher construction costs for new houses and a 7.0 per cent increase in property rates and related services.

Annually, housing and household utilities were up by 6 per cent, including a 12 per cent price increase for the construction of new houses.

“Both supply-chain challenges and high demand are pushing up the cost of building houses,” said Aaron Beck, consumer prices manager at Statistics New Zealand.

“Construction firms reported that it is hard to get many materials needed to build a house, and that there are higher labour and administration costs.”

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