Fast-rising bond yields eat into equity prices

<p>Kia ora,</p><p>Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news the expected reactions are bedding in now with equity prices sliding as bond yields rise sharply again.</p><p>But first, American <a href="https://www.newyorkfed.org/newsevents/news/research/2022/20220411" target="_blank"><strong>inflation expectations</strong></a> are rising, in the short term at least. Median one-year-ahead inflation expectations increased to a new series high of 6.6% in March from 6.0% in February, while three-year ahead inflation expectations actually slipped to 3.7% from 3.8%. The increase in short-term expectations is broad-based across age, education, and income groups. Tomorrow we get the official March CPI data and 6.6% is what is expected for core inflation. But including food and energy, analysts are expecting total CPI inflation to be up at 8.4%, and well above the 7.9% recorded in February.</p><p>The US Treasury auctioned <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220411_3.pdf" target="_blank"><strong>US$46 bln of 3 year Notes</strong></a> earlier today. They got bids worth US$114 bln, but for the accepted bids they had to pay 2.68% - a three year high - which is up sharply from the 1.70% they paid just <a href="https://www.treasurydirect.gov/instit/annceresult/press/preanre/2022/R_20220308_1.pdf" target="_blank"><strong>a month ago</strong></a> in an equally popular auction.</p><p>Canada is girding itself for a +50 bps rate rise by their central bank this week.</p><p>China is apparently getting a bit more inflation now. Their <a href="http://www.stats.gov.cn/tjsj/zxfb/202204/t20220411_1829485.html" target="_blank"><strong>official data</strong></a> says overall prices were up +1.5% in the year to March, but because there was no change from February what we are seeing are base effects moving the annual