Summary:
Australia – 3-Year & 10-Year Bond Yields
Australia’s bond market mirrored global trends but with some local nuances:
- Mid-2021 to Mid-2023: Both 3-year and 10-year yields rose sharply, driven by RBA rate hikes and inflation concerns.
- Spread Compression: While the spread between 3-year and 10-year yields narrowed, it did not invert as dramatically as in the U.S., suggesting a more balanced outlook or differing economic expectations.
- Stabilization: From late 2023 onward, yields began to level off, indicating that the RBA may be nearing the end of its tightening cycle.
Figure 1: Australia 3 and 10-year Bond Yield Spread
United States – 2-Year & 10-Year Bond Yields
The U.S. yield curve has undergone significant shifts since 2019. Notably:
- Mid-2021 to Mid-2023: Both the 2-year and 10-year yields surged, reflecting aggressive monetary tightening by the Federal Reserve in response to inflationary pressures.
- Spread Inversion: The grey shaded area shows a pronounced inversion starting in 2022, where the 2-year yield exceeded the 10-year yield—a classic recession signal. This inversion persisted well into 2024, suggesting prolonged market expectations of economic slowdown.
- Recent Trends: By late 2024, yields began to stabilize, with the spread narrowing slightly, indicating potential easing or a shift in rate expectations.
Figure 2: US 2 and 10-year Bond Spread
To learn more about yield curves and their predictive power, visit this article or this one.