10-Year Bond Rate

IBISWorld forecasts the 10-year bond rate to fall by 0.47 percentage points in 2024-25 to 4.26%. The 10-year bond rate is set to fall in the current year, with the RBNZ beginning to cut the official cash rate (OCR) in August 2024 and the coming months after four years. Following a period of high interest rates owing to inflationary pressures, a return in inflation close to its target range of 1% to 3% has led to interest rate cuts. As a result, the 10-year bond rate is expected to fall in 2024-25.

The 10-year bond rate has exhibited high volatility, mostly decreasing over the years up to 2021-22 before taking a sharp upswing. Movements in the 10-year bond rate have often preceded changes in the cash rate due to investor and market expectations of cash rate decisions. The RBNZ consistently cut the cash rate over the two years through 2020-21 due to weak inflation and subdued economic growth owing to the pandemic. These trends then reversed, leading to a climbing 10-year bond rate between 2021-22 and 2023-24, especially as yields on government bonds in other European countries also skyrocketed. Supply chain disruptions pushed up commodity, goods and services costs across the economy. Additionally, households developed significant cash reserves throughout pandemic lockdowns and started splurging when the country opened up. Central banks around the world have been riding the line to chase down inflation while potentially avoiding recessions. As New Zealand's inflation seems to be approaching its target rate, it has curbed bond rates that have been surging over the three years through 2023-24. Overall, IBISWorld forecasts the 10-year bond rate to rise at an average annual rate of 0.57 percentage points over the five years through 2024-25.