Market News 22 September 2025

Johnny Lee writes:

The bond market continues to face pressure in 2025, as high levels of investable funds, soft supply of new products, and increasingly cautious investors combine to create a complex investment environment.

One notable aspect of this year has been the lack of supply in both the primary (new issues) and secondary (existing bonds traded) markets.

New bond issuance for retail investors has been sparse. Green bonds have proven a popular choice for some issuers, although the yields on offer are occasionally less attractive for retail investors.

More specialised products, such as preference shares, convertible notes and securities where the interest rate resets during the term, continue to emerge from corporate issuers as they try to raise funds while retaining balance sheet flexibility. These types of securities are usually accompanied by a higher interest rate, but require investors to fully understand the unique risks associated with them.

The secondary market is not yet responding. It is increasingly common to find several buyers queued on screen, while sellers, especially those not under pressure, are demanding higher prices.

At the same time, the early repayment of Manawa bonds has led to an unexpected influx of money to bondholders. Contact Energy repaid hundreds of millions early to bondholders, at a time when term deposit rates are unfavourable and look likely to continue downwards in the short term

The term deposit market now offers around 4.00 – 4.20% for longer terms whilst shorter dated terms are now well below 4.00%. The deposit guarantee scheme may end up nudging investors away from the major banks, providing tension towards higher rates.

Another dynamic beginning to re-enter investor thoughts is the lessons from the COVID era.

The COVID environment, just five years ago, was a very challenging time for the world, including financial markets. Interest rates fell sharply, with economists pondering how low rates would need to go to convince people to spend.

One consequence of this was the ability of some corporates to borrow huge sums at what turned out to be poor rates for investors.

Chorus, for example, borrowed seven year money at 1.98 percent in December 2020. Investore, which last week completed its convertible issue, borrowed seven year money at 2.40 percent in August 2020. Auckland Council, notably, borrowed 500 million dollars of 30 year money in September 2020 at only 2.95 percent.

Today, such deals are highly unlikely to be repeated. As interest rates have fallen, investors are regularly expressing a preference for shorter dated terms, hoping to avoid locking in long at a time that they fear is the bottom of the interest rate cycle.

The exception may be bonds where the rate resets. Unlike a normal bond, these pay a fixed return until a specific date, when the rate changes based on underlying interest rates.

Infratil’s IFTHC, for example, is a bond repaying in December 2029. However, the interest rate updates each December. This is to investors’ benefit when rates are rising, and to Infratil’s benefit when rates are falling.

There is one other driver behind investment decisions worth raising: expectations.

Last week saw a shift in these expectations, following the release of particularly poor GDP data from Statistics New Zealand. GDP fell 0.9 percent for the quarter. The Reserve Bank had forecast a decline of 0.3 percent. Calls immediately began to cut interest rates by 0.75 percent by year end, bringing the Official Cash Rate to 2.25 percent.

Manufacturing and construction, in particular, are reporting difficult trading conditions. This aligns with the statements from listed companies, which continue to pin hopes on a 2027 recovery.

The Reserve Bank meets only twice in the final quarter of this year, on October 8 and November 26. The next scheduled meeting after that is February 18.

If we do see a 50 point cut at one of these meetings, the response from investors will not be straightforward. When rates are in decline, the typical response is to look long, locking in rates to shield them from future cuts.

However, the lack of supply and an increasing reluctance to invest for long periods is limiting investor choice. Those relying on a fixed income may be facing more limited options in the short term.

One new opportunity worth noting is Investore Property Limited’s (IPL) offer of four year convertible notes, maturing on 26 September 2029. The notes pay 6.25 percent quarterly. On maturity, they will either convert into Investore shares at a 2 percent discount to market price or be repaid in cash at the company’s discretion.

It may prove to be one of the last fixed interest opportunities at 6.25 percent for some time, particularly if the OCR is cut in coming weeks.

The minimum investment size is $5,000. No brokerage will be charged. Payment is due later this week. 

If you would like an allocation, please contact us with your CSN and indicative amount.

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Infratil gave another hint as to its future, following its Investor Day presentation to shareholders last week. 

The underlying businesses continue to track favourably, with both CDC and Longroad expecting the next few years to see considerable growth. Longroad now has dozens of projects in its development pipeline, primarily in solar. Most of these include a BESS - Battery Energy Storage System - primarily around the southern United States. 

The electricity generated by these projects is normally contracted out for over a decade, providing guaranteed revenue and derisking the project. Recent regulatory uncertainty surrounding tax credits has largely been resolved, with Infratil confident its short term projects will qualify for the tax advantages. 

These developments will cost billions over the years ahead. Although debt will do much of the heavy lifting, Infratil will be investing significant sums into Longroad over the next decade, fuelled in part by the energy demand of new data centre developments in the US. 

Even locally, demand for data centres is not yet slowing. 

Infratil’s other major subsidiary, CDC, now has seven new data centres under construction, with land secured for a further eight across Australia, including the planned Perth expansion. The data centre business remains on track to double earnings over the next two years. 

The challenge may very well be ensuring funding for the rollout of these massive facilities. 

To this end, Infratil confirmed that the $1 billion divestment target remains in focus, and the company is planning to conduct a strategic review of its Australian medical imaging business, Qscan. 

Shareholders will recall that RetireAustralia underwent a strategic review in 2022, before ultimately deciding to retain the business. 

Three years later - last month - Infratil confirmed it was selling the business at a loss and using the proceeds to invest further into its other assets. Infratil’s stake in Qscan was last valued at approximately $460 million, and was acquired in 2020 for $310 million. 

At the time, Infratil viewed Qscan as “an opportunity to create a meaningful Australasian healthcare platform with a number of potential synergies and adjacent opportunities.” An exit would allow Infratil to redeploy capital elsewhere, particularly as Longroad, Gurin and CDC plan for large-scale growth. 

Of course, a strategic review does not guarantee a divestment. Infratil has already illustrated a willingness to delay its plans for more favourable timing when necessary. Infratil also hinted that a second divestment may be on the horizon, stating that another announcement is expected “this financial year” regarding its divestment goals. 

The progress update from Infratil confirms the company is still very confident in its strategy and will be committing billions more into both its renewable energy and data centre businesses. 

This may mean asset sales, and - ultimately - a more focused portfolio.

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Bond Issues

Investore Property Limited’s (IPL) offer of four year convertible notes, maturing on 26 September 2029 set its interest rate at 6.25%, with interest paid quarterly. On maturity, they will either convert into Investore shares at a 2 percent discount to market price or be repaid in cash at the company’s discretion.

It may prove to be one of the last fixed interest opportunities at 6.25% percent for some time, particularly if the OCR is cut in coming weeks.

The minimum investment size is $5,000. No brokerage will be charged. Payment is due later this week. 

If you would like an allocation, please contact us with your CSN and indicative amount. 

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Travel Dates

24 September – Lower Hutt – Fraser Hunter

24 September – Napier (FULL) – Edward Lee

25 September – Wellington – Fraser Hunter

30 September – Taupo – Johnny Lee

1 October – Hamilton – Johnny Lee (full)

3 October – Tauranga – Johnny Lee (full)

7 October – Palmerston North – David Colman

8 October – Christchurch – Johnny Lee (full)

21 October – Lower Hutt – David Colman

22 October – Wellington – Fraser Hunter

22 October – Blenheim – Edward Lee

24 October – Nelson – Edward Lee

Johnny Lee

Chris Lee & Partners Ltd