March 2022 Monthly Commentary

March 2022

Bond markets continued receive much attention during March as interest rates continued their push higher resulting in ‘mark-to-market’ losses for bond funds (ie when interest rates move higher, your holdings of older bonds with a lower interest rate are worth less).  The move upwards in interest rates comes from both investor expectations that central banks will continue to increase their base rate for lending (e.g. the OCR in NZ) and linked to this, that investors demand a higher interest rate to compensate for the erosion of value from inflation. 

How much higher interest rates will continue to climb is a matter of some debate, but we expect that some of the recent momentum will subside and that rates will stabilise around these levels but the risk is to the upside (ie if rates don’t stabilise then we expect they will be rising further rather than falling).  Equity markets were generally strong globally, and the NZ market also rose, though not quite as strongly, with a return of 1.4%. 

This late uptick in March has meant that the return from equities in the first quarter of the year is less severe than it might have been.  The NZ dollar, perhaps surprisingly in a ‘risk off’ environment strengthened appreciably over the month resulting in enhanced returns for foreign currency investments that were hedged back to the NZ dollar.