Market News 2 November 2026

David Colman writes:

Last Wednesday, the Reserve Bank of New Zealand (RBNZ) surprised many by keeping the Official Cash Rate (OCR) at 2.75%. Most economists had expected a 25-basis-point increase.

The Monetary Policy Committee voted 4 to 3 to leave the rate unchanged, suggesting that a rate increase was narrowly avoided.

Annual consumer price inflation (CPI) was 3.7% in the September 2026 quarter, well above the RBNZ's 2% target midpoint. 

So why was the rate not increased?

The RBNZ didn’t exactly provide a definitive explanation.

The September inflation data of 3.7% annually was lower than expected (better than the 4.1% annually figure in June 2026), wage growth has been subdued, and medium-term inflation expectations remain stable.

Despite these factors the RBNZ still noted that price increases have become broader across more of the New Zealand economy as global geopolitical conflicts have driven fuel prices higher from energy supply disruption and energy infrastructure destruction.

The New Zealand dollar has weakened resulting in imports costing more.

The RBNZ expects inflation to rise to 4.4% annually in the December quarter, but this is based on uncertain oil and gas prices.

There is still evidence of an economic recovery in New Zealand. Exporters are benefiting from higher commodity prices, strong demand for New Zealand goods and improving tourism numbers. Domestic demand, however, remains subdued.

Signs, albeit early, of a residential investment recovery in Auckland were also noted.

The RBNZ Monetary Policy Committee confirmed that it is focused on returning inflation to the 2% target mid-point over the medium term, discounting temporary disturbances to inflation and avoiding unnecessary economic instability.

Household spending growth is subdued and that many firms have found it difficult to pass on higher costs to restore profit margins.

There are concerns that the longer inflation remains elevated, the more businesses and households come to expect higher prices. This can influence future wage demands and pricing decisions, making inflation increasingly difficult to control.

Risks were highlighted concerning global growth vulnerability to geopolitical tensions, soaring energy costs, financial stress, and AI-related bets.

For investors looking ahead many years, the Overnight Cash Rate is less important than longer dated rates such as swap rates and treasury interest rates which have both eased since late September, early October.

The US 10-year treasury yield has fallen from a multi-decade high of over 5.30% to a little above 4.90%.

10-year Australian government bond yields sit at approximately 5.13%.

10-year New Zealand government bond yields are in the vicinity of 4.80% which implies that expectations for New Zealand’s economic growth, inflation, monetary policy and asset prices are more favourable than our larger neighbour Australia and the world’s largest economy.

Regarding inflation, despite the ways that central banks measure it, for each of the countries above, the cost of unavoidable household expenses, such as mortgage and rent payments, utilities, insurance and maintenance, have risen sharply.

The measure of inflation in both the USA and New Zealand is 3.7% annually now and both country’s central banks chose to keep each of their central bank rates unchanged in October (notably there are elections occurring in both countries).

Australian inflation is at 4.30% and the odds would be long for the Reserve Bank of Australia not to increase its cash rate for the fifth time this year from 4.60% to 4.85% on the same day as the Melbourne Cup tomorrow.

Central banks are expected to keep raising rates to keep inflation in check with the RBNZ’s latest decision risking New Zealand getting out of step with Australia.

The NZ dollar slid against the Australian dollar after the RBNZ decision and may slide further if the RBA hikes again as is widely forecast.

In the meantime, underlying bank rates such as swap rates, that are greatly influenced by central bank rates and treasury yields have eased in the last month against a general upward trend during the 2026 year.

Swap rates provide a basis for rates available for longer-dated term deposits, bonds and notes.

New corporate bonds and notes which are issued in New Zealand use a privately determined, but publicly disclosed, margin plus the swap rate applicable for the term of the bonds or notes to establish the coupon rate.

For example, for new issues, a 5-year bond coupon rate is calculated by adding the margin plus the 5-year swap rate.

The margin has a considerable influence on interest rate settings for new issues.

Kiwi Property Group recently (in October 2026) issued a 7-year bond (KPG080) with a margin of 1.25% reflecting a significant reduction in margins compared to a similar 6-year bond issued in December 2024 (KPG070) which involved a margin of 1.70%.

The above bonds show a curious aspect of interest rate setting with the bonds issued in 2024 with a higher margin when underlying interest rates were lower, and the more recent bonds issued in 2026 with a lower margin when underlying interest rates were higher.

KPG070 has a coupon rate of 5.35% and KPG080 set a coupon rate of 5.62% so ultimately the return for the bond with the lower margin still has a higher cash flow.

New issue margins are generally negotiated between the issuer and lead manager, with the aim of keeping them as low as possible without discouraging investors. Unfortunately, this means margins may reflect investor demand more than the risks being taken.

Kiwi Property Group’s shares are trading at much the same share price (about $0.91 per share) today as they were in December 2024 so it does not seem that shareholders deem the company of greater nominal value per share yet bondholders today accept a lower margin than they did for a shorter-term bond issued less than two years ago.

It has been very rare for bond issues to fail to find investors particularly as interest rates have increased from lower levels and given there are large pools of money from both individuals and institutions seeking fixed rates of return often with a long-term average rate of return of 5% plus being a fairly common target.

It is understandable to see advantageous margin setting by corporations in the face of high demand.

It is still disappointing to see new issues subject to a kind of shrinkflation resulting in less favourable margins that might otherwise have been higher and have more richly rewarded investors.

Johnny Lee writes:

Precinct Properties made a significant announcement last week, as it continues to navigate what are clearly challenging economic conditions.

Precinct has determined that it will not proceed with the Downtown Car Park development.

The project was already in fairly advanced stages, with a Main Contractor appointed and negotiations underway to pre-lease most of the development.

The project was cancelled because of rising interest rates and construction costs, which had undermined its financial viability.

Simply put, the project no longer represented good value for Precinct shareholders. Precinct will retain the site and continue operating the car park. Development may resume at a future date.

The cancellation represents a blow to the Auckland construction sector and associated industries. The Fast Track submission had included analysis of the project, which included over a billion of direct expenditure and thousands of jobs created.

The decision has four main implications for Precinct shareholders.

Firstly, Precinct is making a significant Capital Return of 5.555 cents per share. This will be paid on 13 November and is being treated as unimputed, excluded income. Precinct had raised money from its shareholders as recently as October 2025, raising $310 million for its future development programme.

Secondly, Precinct is conducting a share Consolidation at a ratio of 16 new shares for each 17 existing shares, with conventional rounding for fractional holdings. This means a shareholder of 10,000 shares will become a shareholder of 9,412 shares.

Put together, the Capital Return and Consolidation will see a theoretical ex-rights price very similar to the average price prior to the announcement (93.82 cents vs 93.78 cents).

Thirdly, Precinct is conducting an on-market share buyback. Over the next twelve months, Precinct will buy back up to $50 million of its own shares, which currently trade at a discount to the value of its asset backing.

Lastly, the cancelled project will impact forecast future earnings, which has led to a dividend cut. Going forward, the company has “rebased” its distribution from 6.75 cents per share to 6.50 cents per share. The next dividend, due December this year, will be the first to be impacted.

In practical terms, shareholders will own fewer shares, receive a one-off capital payment and, going forward, receive a slightly lower dividend.

The Downtown Car Park project will not be the last project to be cancelled in this environment. Interest rates have climbed over the last five years, from 0.25% in 2021 to 2.75% today, and assumptions from 2021 may no longer hold true.

New Issues

Contact Energy launched its new subordinated capital bond issue today, with applications closing on 5 November.

The bonds have an initial term of 5.5 years with the interest rate to be set at, or higher, than a minimum interest rate of 5.80% per annum.

The bonds will be listed under the code CEN100.

Please see the indicative terms sheet which is available on our website.

Clients will not be charged brokerage for this issue as Contact is paying the transaction costs.

Auckland Airport is also expected to issue a 5-year senior bond issue this week, with a possible interest rate of around 5.00% per annum. Auckland Airport will not be paying the transaction costs for this offer, so clients will be charged brokerage.

Investors who are interested in these potential bonds are welcome to contact us with their CSN and an indication of the amount they may wish to invest.

Travel

16 November – Wellington – Gavin Parkes

17 November – Lower Hutt – David Colman

17 November – Christchurch - Chris Lee

18 November (am) – Christchurch – Chris Lee

18 November (pm) – Ashburton – Chris Lee

19 November – Timaru – Chris Lee