Fixed income losses painful

The most significant feature was the losses sustained by fixed income investors as bond yields were repriced higher. Most notably, the S&P/NZX NZ Government Stock index fell 3.4% over the quarter while the Bloomberg Barclays Global Aggregate index gave up 2.0% (hedged to the NZ dollar).

While yields had been rising since mid-year, Donald Trump's surprise election victory spurred a rally that saw the US 10 year Treasury yield climb from 1.8% on November 7 to its most recent peak of 2.6% on December 15 - a 40% increase in just six weeks.

The fixed income losses may be painful, but MJW analyst Nitya Lakshmanan says longer term results remain healthy given that domestic and global bond indices have returned 5.5% pa and 7.1% pa respectively over the last three years - well above the 3.1% result from cash. "We may well be at a turning point for yields but the bond bears should hold off their gloating just yet."

Another notable reversal of an established trend in the December quarter was the relative performance of the New Zealand and Australian equity markets which saw the Kiwi market give up a significant proportion of previous gains while the Aussie bourse rebounded strongly. The annual returns for both markets were around 10 per cent, though the NZX remains ahead of the ASX by almost 10% over the past three years.