The return of the Bond vigilantes

September was all about inflation and interest rates. Interest rates around the world are rising, with official rate hikes in the US, Japan, New Zealand and Australia. Central bankers are nervous about inflation, which continues to sit above targeted rates and is not being helped at all by the recent surge in oil prices as the Iran / US conflict escalated.

With interest rates in many parts of the world now hitting highs not seen since pre-GFC days, markets remained relatively sanguine, with global equity markets falling only 1.5% in the month. That does not tell the full story though — Big Tech and AI performed strongly while main street struggled. The divergence is demonstrated by the tech-heavy Nasdaq delivering a 3.3% return while the small-cap orientated Russell 2000 fell 5.3% and European equities fell by almost 3.5%. Anyone in the non-tech sector will struggle with higher interest rates.

From a KiwiSaver perspective, Kōura Aggressive portfolios still moved up in the month, delivering a 1.7% gain driven largely by an overweight tech position and a falling New Zealand dollar.

For more information on these numbers, scroll to the end of the blog.

The U.S. Fed hiked for the first time in three years

On 16 September the Federal Open Markets Committee raised the federal funds target to 3.75–4.00%, its first increase since 2023. Markets had widely expected this, but the news conference caused a stir.

Kevin Warsh told everyone that rates at this level aren’t actually restrictive, which in plain English means he doesn’t think current settings are slowing the economy down enough to get inflation back to 2%. This was a surprise, as he had been recently appointed by Donald Trump on the expectation that he would keep interest rates lower. There is likely to be at least one more rate hike before Christmas.

Inflation continues to push higher in the US, up at 3.4%, driven by a combination of massive government spending, higher oil prices (petrol is up 27% year on year) and AI spending taking capacity out of the economy.

The bond market showed that it expects interest rates to continue rising. The 10-year Treasury yield rose to 5.29% at 30 September, its largest monthly increase in four years, and by the final days of September it touched its highest level since 2002. The US is not alone here, with interest rates rising in Japan to a 32-year high in the month and further rate rises implemented in New Zealand and Australia.

The headline number for the stock market does not tell the story

The Nasdaq-100 rose 3.3%. The Russell 2000 — America’s 2,000 smallest listed companies — fell 5.3%, its worst month since the tariff tantrum of March 2025, and the Dow fell 4.1%.

The big difference is interest rates. Smaller companies are far more exposed to interest rates; the sharp increase in interest rates impacts these companies almost immediately, while the large AI names fund their spending out of cash flow and sell to customers whose budgets are already committed.

Europe was down by almost 3.5% on fears over energy costs (it is a major importer), higher interest rates, and further unrest in France demonstrating how hard it will be to get the EU’s second largest economy back into a normal state.

Renewed tension in Iran is pushing oil and inflation higher

Brent crude started the quarter at US$72 a barrel on 1 July, the lowest since February, and finished September back above US$100 after renewed US–Iran strikes, attacks on shipping and the shutdown of a key Saudi pipeline. The striking number is the scramble underneath the headline price: Omani crude traded at US$132.09 a barrel in mid-September, a premium of almost US$24 over Brent, as refiners hunted for barrels that could physically get out.

Here in New Zealand, the Reserve Bank hiked interest rates but the dollar still dropped

On 2 September, the RBNZ lifted the OCR to 2.75%, its second consecutive increase, by unanimous agreement, and was blunt about why: the Middle East conflict has pushed petrol and diesel prices up and the economy is recovering despite it.

Despite the rising interest rates, the NZD fell more than 4% over the month, to around 56.5 US cents and its weakest since November 2025. The fall in the NZD is more a US story than a New Zealand one, with interest rates rising in the US and FX markets confident that Kevin Warsh will do what is necessary to fight inflation. A weaker currency is likely to push inflation higher, with many of our goods being imported.

Bitcoin rose despite the higher interest rates

Bitcoin finished September at US$83,556, up 7.6%, and our Bitcoin fund returned 10.7%.

US spot ETFs took in a net US$2.65 billion over the month, including US$2.39 billion in the week to 26 September, the strongest week of 2026, on seven straight days of inflows — institutional investors appear to be getting behind this revised Bitcoin rally.

Disclaimers

1. Source: Factset and Kōura unit prices. Kōura returns are pre-tax and post-fees. Returns over 12 months are annualised. Local market returns use the relevant market indices; NZ Equities uses the NZX50 index; US Equities uses the S&P500 index; Rest of World uses the MSCI EAFE Index; Emerging Markets uses the MSCI Emerging Markets Index; Fixed Interest uses the Bloomberg Aggregate NZ Composite Bond Index. Bitcoin return is the USD change in the price of Bitcoin. The return for an Aggressive Portfolio represents the equivalent of 95% growth and 5% income assets, and a Growth Portfolio the equivalent of 80% growth and 20% income assets, invested across the Kōura Funds in their current strategy weightings (which include the Kōura Strategic High Growth Fund). Returns are calculated by Kōura. The Kōura Strategic High Growth Fund launched on 9 December 2024, so no 36 month return is shown for it, nor for the Aggressive and Growth Portfolios, which hold it in their current weightings. Past performance is not a reliable indicator of future performance. Returns are not guaranteed, and investment values may fluctuate over time.
2. Bitcoin is highly volatile and not suitable for all investors. Before investing part of your KiwiSaver balance in the Kōura Bitcoin Fund, ensure you fully understand the risks associated with cryptocurrencies: https://shorturl.at/U6Mkp, and/or consider seeking financial advice.
3. The views and opinions expressed in this article are those of Rupert Carlyon. This content is for informational purposes and should not be considered financial advice. Before making any financial decisions, consider consulting a financial adviser.
4. Kōura Wealth Limited is the issuer and manager of the Kōura KiwiSaver Scheme. A copy of the Product Disclosure Statement is available at kourawealth.co.nz/pds
5. Past performance is not a reliable indicator of future performance. Returns are not guaranteed, and investment values may fluctuate over time.