The week it was back to “risk-on” in global markets, with bond yields, commodity prices rising as equity markets rebounded. Australian bond yields moved in line with offshore long term yields until the release of stronger-than- expected Q4 GDP figures on Wednesday. Yields rose strongly on the day and then again the next day as offshore bond yield rises added to the move. Over the week, yields on 3 year government bonds rose 19bps to 1.91%, while 10 year and 20 year bond yield each rose 17bps to 2.56% and 3.09% respectively. This are big moves from a low base and should be monitored closely over coming weeks as we may have reached a significant turning point. The AUD rose nearly 3 US cents over the week.
Rising yields were common in most advanced economies, with the Italians providing the exception. US 10 year rates rose 11bps (they are still under the psychologically important 2% level) to 1.88%, the UK 10 year yield rose 9bps to 1.49%, German rates were up 10bps to 0.24%, French rates were up 8bps to 0.58% rates. The latest Eurozone report indicated core CPI fell from 1.0% yoy to 0.7% yoy which would normally see yields falling but the US PCE data released on the previous Friday (US time) exceeded expectations and set the global tone for the week.
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