Bond yields rise sharply

<p>Kia ora,</p><p>Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news markets are reacting today to the rising expectation that the Fed will move against the inflation threats earlier than they had priced in.</p><p>But first, today's <a href="https://www.globaldairytrade.info/en/product-results/" target="_blank"><strong>dairy auction</strong></a> was a good one - even if perhaps not quite as good as the futures market was expecting. Overall prices were up +4.6% in USD terms and +5.2% in NZD terms. Starring was the butter price, rising to a record high and breaching the US$6000/tonne mark for the first time ever. The global recovery in the foodservice market is one driver of these strong prices. The other is a falloff in global dairy production, and that includes New Zealand. But it is a good result when local production will be down -1.6% but prices are up +4.6%. Clearly this will be positive for the farm gate milk payout. On a <a href="https://dairy-tools.nzx.com/fgmp" target="_blank"><strong>formula payout calculation basis</strong></a>, this would support a NZ$9.10/kgMS price if these prices lasted for the rest of the season - and it is likely that many analysts will be raising their forecast after this latest auction.</p><p>Lower milk production is only a part of it. Agricultural <a href="https://www.bcr.com.ar/es/sobre-bcr/medios/noticias/la-fecha-la-sequia-202122-les-costara-los-productores-agropecuarios-us" target="_blank"><strong>production is slipping</strong></a> worldwide and that is <a href="https://www.fao.org/worldfoodsituation/foodpricesindex/en/" target="_blank"><strong>keeping prices very high</strong></a>, and they will probably go much higher yet - making life very hard for emerging economies.</p><p>But the big overnight international financial market news is the emergence of a taper tantrum on Wall Street as markets r