Governments bonds dropped but the relatively unexciting change on a month by month basis disguised some unusually large daily movements. The RBA left rates unchanged again at its August meeting and the quarterly Statement on Monetary Policy released shortly after showed that the RBA expects growth and inflation to be slightly lower. Employment may have peaked but is likely to remain at these levels for 18 months or so.
A large revision to US Q1 GDP figures set the tone for rising global bond rates early in August but this became a footnote when the People’s Bank of China unexpectedly devalued the yuan against the US. The ‘one off’ revaluation occurred over several days causing confusion in markets and casting doubts on global growth rates and inflation expectations. Equity markets were rattled with some major falls and in Australia, the worst month since the GFC. The Dow Jones index opened on 24 August down 1,000 points before recovering to close down 588 points. Bonds rallied sharply before gradually giving back the gains in the next few trading sessions. The PBoC took action to cut rates and reduce their bank reserve requirements which appeared to settle markets. The FOMC minutes were released but also overshadowed by events in China. The volatility may well scupper the Fed’s plan to raise rates in the US in September as it likely does not wish to be adding to market volatility. Refer article rates lower for longer
Our 3y bonds closed at 1.77%, down 14bps but with low of 1.64% and a high of 2.04% for the month. The trading range of 10y bonds was not quite as wide but even still, rates ranged from 2.49% to 2.91% closing the month at 2.69%, down 11bps for the month.
Australian Government Bond
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