Over the past 12 months the interest rate on 10 year NZ Government bonds has dropped by more than half, from around 2.2 per cent in early 2019.
The drop suggests both confidence in the New Zealand's Government as investors look to park money in safe investments, but also points to expectations that the global economy could take a major hit from disrupted supply chains.
"These are not what you'd call normal times, this is a classic flight to safety" economist Cameron Bagrie said of the falling bond yield, plunging share prices and expectations that the Reserve Bank will cut interest rates.
"It's telling you that things around the corner could be pretty grim."
Bagrie said it appeared likely the Reserve Bank would join other central banks around the world in lowering interest rates in a bid to prop up demand.
But with limited scope to reduce borrowing costs - the official cash rate is already at a record low of 1 per cent - Bagrie said the Government should look to take steps to assist businesses who are likely to face cashflow issues due to the disruption.
Statistics New Zealand released figures showing a sharp decline in exports in some key industries since late January, when travel restrictions were put in place in China.
The problem was mainly a supply one, Bagrie said, with exporters unable to get their goods into China and sell them. Demand had been hit by the resulting drop in confidence.
"Central banks are geared to stimulate demand, give us a bit of a shot in the arm when the demand side of the ledger is pretty weak. What we are seeing is a supply shock, which is spilling over with demand consequences because confidence is starting to take a bit of a knock."
Bagrie said a cut in interest rates would not solve the problem, and if the Government waited too long the consequences could be severe.
"The central bank cannot fix the supply chain. It cannot make people want to spend again," Bagrie said, adding that Finance Minister Grant Robertson could not afford to wait until May's Budget to act.
"The Government needs to step up. If things keep going like they are, then May is going to be too late.
"The banks, the Reserve Bank and the Government need to be getting together and working out what is something sensible we can put on the table here to help businesses manage their liquidity position over the next two or three months on the assumption the economic news is going to be poor."
Infometrics economist Brad Olsen said the record low yield on bonds was a sign of confidence in the Government, which has a healthy domestic economy and low debt relative to other similar countries.
"But we're only in such a good position if we use it. If we wait and wait and wait, all that safety net may not be of any great use down the track," Olsen said.
While the domestic economy in general was in good shape and did not necessarily need stimulus, it was clear that some businesses in certain sectors such as tourism and forestry would face severe, immediate challenges.
The Minister of Finance may be considering direct support to industries where businesses were facing a sudden downturn.
"It may well be that the Government considers direct targeting of the type that you saw after the Kaikoura earthquake," Olsen said.
"Which is essentially a job seeker's support benefit, but for an already employed person to keep them paid while there's no work occurring."
