Global financial shocks — particularly from the United States — are playing a major role in recent changes in New Zealand’s government bond market, according to new research released this week.

An Analytical Note published on 20 January by economist Finn Robinson examines the growing gap between New Zealand Government Bond (NZGB) yields and interest rate swap (IRS) rates, known as the NZGB-swap spread. The study finds that global forces, rather than purely domestic factors, are driving much of the recent movement.

The research shows that NZGB-swap spreads tend to become more volatile during periods of global bond market stress and rose sharply following the Global Financial Crisis. Since mid-2023, the increase in New Zealand’s bond-swap spreads has closely mirrored similar trends in other countries, suggesting international pressures are at play.

Using advanced economic modelling, the study estimates that in the long run, around 56 percent of the variation in New Zealand’s 10-year NZGB-swap spread can be explained by shocks originating in the United States. The analysis also shows that both US-based shocks and domestic factors have contributed to the sharp rise in spreads since mid-2023.

The findings underline how closely New Zealand’s financial markets are tied to global conditions.

“Trends in New Zealand financial markets can often be traced back to global factors,” the note states, highlighting the importance of understanding whether changes in local financial conditions are driven by overseas events or domestic issues.

The research was prompted by concerns over the sharp rise in NZGB-swap spreads since mid-2023. Such increases are often seen during periods of reduced liquidity in the government bond market, raising questions about whether the recent movements signal broader economic pressures or potential strains within the market itself.

Given the central role of the United States in global financial markets, the study focused specifically on US economic shocks and their transmission into New Zealand’s financial system.

The findings reinforce recent commentary by policymakers that New Zealand’s financial conditions cannot be viewed in isolation and must be understood within a global context.