The cost of money rises ever higher

<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>And today we lead with news asset values are under threat as the cost of money rises.</p><p>All the focus in financial markets is on bond yields. They rose overnight as investors concluded that the world's major central banks would need to keep the interest rates higher for longer to keep inflation in check. The yield on the benchmark US 10-year Treasury note rose well above 4.5%, topping 2007 highs while Germany's 10-year bund yield surged towards 2.8%, its highest since July 2011.</p><p>The ECB <a href="https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230925~036083efca.en.html" target="_blank"><strong>warned</strong></a> that it will be holding its policy rates higher "for as long as is necessary" to get inflation down. That could be quite a while.</p><p>And in Washington, Moody's <a href="https://www.bloomberg.com/news/articles/2023-09-25/government-shutdown-negative-for-us-credit-rating-moody-s-says?srnd=premium" target="_blank"><strong>warned</strong></a> that any Government shutdown over its inability to pass a funding resolution would be negative for its rating, adding further yield pressure on the benchmark.</p><p>Meanwhile in the US, the <a href="https://www.interest.co.nz/sites/default/files/2023-09/cfnai-september2023.pdf"><strong>National Activity Index</strong></a> compiled by the Chicago Fed slipped in August after its July rise. Activity is still expanding, but now below trend.</p><p>The September Dallas Fed factory survey <a href="https://www.dallasfed.org/research/surveys/tmos/2023/2309" target="_blank"><strong>reports</strong></a> growth returning to factory production and the level of new orders not falling away as fast. But future uncertainty levels rose, despite these near term improvements.</p><p>In China, it is crunch time for a growing number of very large proper