21 Mar 2012

Better US economy could mean higher NZ borrowing costs

7:40 am on 21 March 2012

The head of fixed income at Harbour Asset Management says an improving United States economy could lead to higher borrowing costs in New Zealand.

The US central bank, the Federal Reserve, recently acknowledged the outlook for the US economy was improving, sparking a jump in the US ten-year government bond yield from 2% - the level it has been at since November 2011- to 2.3%.

Christian Hawkesby says that means banks are having to pay higher rates for their funding and that will filter through to the amount they will want to charge for mortgages and other borrowing.

Mr Hawkesby says there have also been positive developments in Europe, giving confidence that politicians are on the right track.

But he says there is still a long way to go and difficulties co-ordinating action across the EU could mean the region's problems could recur.