SYDNEY, AAP – Rising bond yields have helped flatten the Australian share market as the Reserve Bank continued its standoff with investors over when rates will go up.
The Australian 10-year bond yield rose to 1.73 per cent as investors tip a rate rise in the COVID-19 economic recovery much earlier than the central bank suggests.
The Reserve Bank of New Zealand this month raised rates by 0.25 per cent to 0.5 per cent. The US Federal Reserve is tipped for a rate hike as early as next year.
Burman Invest chief investment officer Julia Lee explained why higher yields were important for owners of shares.
“The cost of borrowing is rising. For companies where growth is in the future, that growth gets discounted and the shares become less valuable.
“Generally with rising bond yields you see property stocks discounted and the tech space.”
Rising yields could be good for bank and insurer shares however. Ms Lee said insurers often invested money from premiums in government bonds.
The Reserve Bank is at odds with bond investors, the bank reiterating that rate rises would not happen before 2024 in minutes published from its October meeting.
Many investors are tipping the bank will have its hand forced by rate rises overseas.
Ms Lee said the RBA had to consider the Aussie dollar in rate decisions. If the Aussie dollar weakened too much, investors could buy plenty and overstimulate the economy.
The Aussie dollar has climbed to be buying 74 US cents since late last week.
The share market closed little changed despite trading higher for most of the day following a good US lead.
Technology and property were the best-performing shares.
The benchmark S&P/ASX200 index closed lower by 6.2 points, or 0.08 per cent, to 7374.9.
The All Ordinaries closed up 0.5 points, or 0.01 per cent, to 7690.2.
There were big losses among the miners.
BHP produced less iron ore after Western Australia’s COVID-19 border controls hampered the number of train drivers able to transport the commodity.
The miner revealed production of its most lucrative material fell three per cent from the previous quarter to 63.3 million tonnes. This was down four per cent on the 2020 first-quarter.
Shares were down by about two per cent to $38.39.
Rio Tinto dropped more than three per cent. Fortescue lost more than one per cent.
The big four banks all had losses of less than half a per cent.
Hearing implant provider Cochlear said COVID-related surgery delays in Australia and the US affected first-quarter earnings.
While delays are expected to continue, Cochlear kept to its full-year earnings guidance of improving profit by at least 12 per cent.
Shares were up 1.88 per cent to $219.29.
Pallets and containers provider Brambles forecast full-year underlying profit to improve by one to two per cent.
The improvement will be limited by spending on data analytics and other software which will cost about $67 million. Greater spending on this technology will follow in subsequent years.
Shares improved 0.2 per cent to $10.17.
Tabcorp said first-quarter sales were down more than seven per cent due to coronavirus restrictions.
The closure of racing venues, and pubs and clubs, affected the wagering and media division most.
Company leaders said the demerger of the lotteries and Keno arm was on track for next year and would cost up to $275 million.
Shares were down 2.68 per cent to $5.09.
The Australian dollar was buying 74.68 US cents at 1725 AEDT, higher from 74.04 US cents at Monday’s close.
ON THE ASX
* The benchmark S&P/ASX200 index closed lower by 6.2 points, or 0.08 per cent, to 7374.9 on Tuesday.
* The All Ordinaries closed up 0.5 points, or 0.01 per cent, to 7690.2.
* At 1725 AEDT, the SPI200 futures index was up 18 points, or 0.25 per cent, at 7360 points.
One Australian dollar buys:
* 74.68 US cents, from 74.04 cents on Monday
* 85.19 Japanese yen, from 84.55 yen
* 64.09 Euro cents, from 63.90 cents
* 54.21 British pence, from 53.90 pence
* 104.55 NZ cents, from 104.75 cents.