Although the curve has flattened, it has yet to become inverted, which is when the trouble starts. An inverted curve happens when short-term bonds have higher yields than long-term bonds.
A flat or inverted curve is seen as a fairly reliable signal that an economic slowdown or recession is on the way.
Salt Funds managing director Matt Goodson said despite the warning signs from the world's biggest bond market, equities have performed surprisingly well.
"They say 'Don't Fight The Fed' for a reason but the market has ignored that in the very short term," Goodson says.
"It [the yield curve] has certainly flattened a hell of a lot and is on the verge of inverting."
That's not to say that the yield curve is a fail-safe.
"But it's something that investors ignore at their peril," Goodson said.
"Covid-19 and the Ukrainian war are significant supply-side shocks, which by their nature tend to be inflationary and negative for economic growth."
FPH's outlook dims
Fisher & Paykel Healthcare — a company that has boomed on the back of Covid-related demand for its respiratory products — now looks like returning to some semblance of normality, going on its latest revenue guidance.
Shares in New Zealand's biggest company by market capitalisation fell sharply after it said it expects its operating revenue to be between $1.675 billion and $1.70b in the year to March 31 - short of market expectations - compared with the previous year's revenue of $1.97b.
Forsyth Barr said the downgrade marked the first genuine insight into what the transition to a post-Covid world may look like, "and it's not a good start".
Analysts are not too concerned about the current financial year but are casting their eyes towards 2023.
"We think 2023 is likely to be the 'new base' but believe it could be challenging with significant negative operating leverage, as operating expenses continue to grow and freight costs are expected to remain elevated while a rebound in revenue may take time to materialise," Forsyth Barr said.
"Looking beyond this, we continue to see F&P Healthcare as well positioned to deliver long-term revenue growth and see a return to its long-term margin targets."
The broker has a "neutral" rating on F&P Healthcare with a target price of $25.05.
Adrian Allbon, director of equity research at Jarden, was more upbeat, upgrading the stock to "overweight".
"We were expecting FPH earnings to normalise over the next 18 months and its share price to come under pressure as this transition played out.
"Our upgrade to overweight is based on our view that most of this normalisation risk is now in the share price, coupled with our unchanged longer-term confidence in FPH's growth prospects with increased certainty given the hospital hardware predominantly placed with Covid-19 demand."
He said the downside risks were lower consumables use and New Zealand dollar volatility.
My Food Bag struggles
My Food Bag's share price has struggled since listing a year ago, despite meeting its targets.
The meal kit company, in its most recent update issued in January, said it continued to perform strongly but said like all businesses it was experiencing increased inflationary pressure.
"Given the performance through the first three quarters of FY2022 and the positive early trading in January, the board is pleased to reaffirm its 2022 earnings guidance, as outlined in the Prospective Financial Information provided at the time of the IPO," the company said.
But shares in the company, which were issued at $1.85, are trading near the bottom of their $1.64 to 89 cent range for the past 12 months.
Salt Funds' Goodson said the concern at the time of IPO was that My Food Bag may have dialled back its marketing expenditure to bolster profit forecasts.
He said the concern now was that the company may be under considerable cost pressure from food, labour, transport and storage.
"Whether they can recoup that and how temporary that proves is unclear," he said.
"The potential but somewhat distant bull case is that they can leverage their distribution network to move from pre-prepared food to a core food offering," he said.
The company's annual result is due out in May.
Upside for NZL?
Strong demand for dairy could benefit NZX-listed farm owner and landlord NZL, which is in its second year of operation, Craigs Investment Partners says.
Craigs' analyst Kieran Carling noted that prices for raw materials that constitute the fertiliser market are up 30 per cent since the turn of the year and now exceed those seen during the food and energy crisis in 2008, with Russia and Ukraine among the most important producers of agricultural commodities in the world.
Russia, which accounts for around 14 per cent of global fertiliser exports, has temporarily suspended outgoing trade, which is expected to have a strong ripple effect across global food markets.
While farmers in developed markets have benefited from high agricultural commodity prices, helping to partly offset high input prices, "demand destruction is increasingly likely due to high prices and supply shortfalls".
"Given that New Zealand is the lowest cost producer of milk-solids thanks to abundant water for pasture-based farming that primarily has fixed costs, we expect demand for NZ dairy products will continue to grow on the back of the supply shortfall," Carling said.
"Subsequently, we expect that dairy land prices in NZ and on-farm profitability, linked to farmgate prices, will continue to track upward, benefiting NZL and its tenants respectively."
