Govt bonds hit fresh 19-year high as US mulls ban on diesel exports

Government bond yields spiked around the world amid renewed inflation fears as the prospect of a US ban on diesel exports raised concerns about global energy supply, while Iranian President Masoud Pezeshkian said he wouldn’t respond to threats in trying to settle the conflict in the Middle East.

The kiwi dollar tumbled against a broadly stronger greenback as Federal Reserve governor Michael Barr said he expects the central bank will hike its federal funds rate next month to try to tame inflation.

Meanwhile, the upcoming summit between US President Donald Trump and his Chinese counterpart Xi Jinping remains keenly awaited, with trade, technology and the Middle East likely to be key topics of discussion.

And Fonterra Cooperative Group is expected to report earnings near the top end of guidance when it announces its result today, while Air New Zealand and Vector are among a handful of companies holding their annual meetings.

Bonds are back

The yield on 10-year treasuries jumped 14 basis points to 5.11% at 7am in Auckland, having peaked at 5.14%, its highest level since 2007. Global bond prices fell as investors demanded a higher yield amid renewed inflation fears as Brent crude jumped 4.2% to US$103.40, as the prospect of the US banning diesel exports stoked energy supply fears, with President Trump saying he’d support the measure.

Iran’s President Pezeshkian told the United Nations General Assembly that he was ready to resume negotiations to reopen the Strait of Hormuz, but wouldn’t respond to threats.

Meanwhile, Fed governor Barr’s comments that the central bank needed to raise its benchmark rate further to tame inflation, and accelerating industrial activity on both sides of the Atlantic, added to the pressure on bond markets.

“Investors are concerned about the prospect of higher inflation, against a backdrop of rising energy costs, mounting pressure on fiscal accounts from higher interest costs, and strong PMI reports overnight that added to the upward pressure on rates,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “An export ban, or even reduced US exports, would have global ramifications, including making it more difficult and expensive for NZ to acquire diesel.”

The spike in bond yields rippled through other markets, with the kiwi dollar sliding to 56.74 US cents at 7am from 57.02 cents yesterday, while stocks on both sides of the Atlantic declined.

The S&P 500 fell 0.7% in late trading and the tech-heavy Nasdaq Composite slid 1.1%, while the Dow Jones Industrial Average declined 0.6%, with McDonald’s Corp, Alphabet, and Home Depot at the bottom of the leaderboard.

European shares were also softer, with the UK’s FTSE 100 marginally weaker, while Germany’s DAX fell 0.7% and France’s CAC 40 declined 0.4%.

Islands in the stream

In corporate news, Walt Disney Co dipped as the media giant said it was raising prices for streaming services in the US, while McDonald’s earmarked about US$8.5 billion to help franchisees use artificial intelligence tools and upgrade their kitchens.

Meanwhile, Microsoft said it planned to invest more than US$10 billion across the United Arab Emirates, Saudi Arabia, Qatar and Kuwait through to 2030 to improve resilience in cloud and AI infrastructure.

And China’s DeepSeek joined the US push to improve AI safety, with the Hangzhou-based company releasing a 10,000-word paper on training models more efficiently while minimising misbehaviour.

China’s President Xi will meet his US counterpart in Washington on Wednesday in a three-day visit, with trade high on the agenda ahead of the Nov 10 expiry of the current truce between the superpowers. US Treasury secretary Scott Bessent said the US was open to extending the truce or negotiating a larger trade deal.

The Organisation for Economic Cooperation and Development’s latest quarterly report on the global outlook said international output probably grew at a faster pace than its June forecast, while warning that the protracted conflict in the Middle East could dent activity.

The subdued tone is set to carry through to the local session, with Australian futures pointing to a 1.1% slide for the S&P/ASX 200 index when trading opens across the Tasman. Japanese markets return from their three-day holiday, while South Korea is closed.

Fonterra is due to report its annual result today, having this month said earnings would be at the top end of its 60 cents per share-to-70 cents per share guidance range, and expected to deliver a strong dividend.

Air New Zealand, Vector, Paysauce and Burger Fuel Group hold their annual meetings today, while companies shedding rights to upcoming dividends include Briscoe Group, Colonial Motor Co, Delegat Group, and the Private Land and Property Fund.

Local data today include the Reserve Bank’s monthly mortgage lending figures.

Reporting by Paul McBeth. Image from Marek Studzinski on Unsplash.