| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.584 | 3.489 | 0.095 |
| Australian 10-year bond (%) | 4.436 | 4.369 | 0.067 |
| Australian 30-year bond (%) | 5.062 | 5 | 0.062 |
| United States 2-year bond (%) | 3.99 | 3.994 | -0.004 |
| United States 10-year bond (%) | 4.459 | 4.439 | 0.02 |
| United States 30-year bond (%) | 4.901 | 4.8564 | 0.0446 |
LOCAL BOND MARKETS
Australia’s 10-year government bond yield held steady at a one-month high to around 4.47% on Tuesday, supported by improved risk sentiment following an agreement between the US and China to reduce mutual tariffs for 90 days. The temporary halt in the trade war between the world’s two largest economies eased worries of a global recession. Markets interpreted the easing of trade tensions as reducing the urgency for aggressive rate cuts domestically and now implies an Australian policy rate of 3.25% by year-end compared to around 2.85% a couple of weeks ago.
Still, traders remain fully priced for a 25bps rate cut from the RBA later this month. In domestic news, consumer confidence in Australia rose in May, while business sentiment also improved in April, suggesting an optimistic outlook for the economy.
US BOND MARKETS
Treasury debt slipped as gains for US stocks reinforced the broadening conviction on Wall Street that Fed interest-rate cuts are unlikely before December. The US government bond market erased gains that were spurred by April inflation data that showed smaller increases in consumer prices than economists estimated. The two-year note’s yield, more sensitive than longer maturities to expected changes in the Fed’s rate, was little changed at about 4.02% after earlier dipping to 3.95%.
While derivative contracts continue to price in two quarter-point rate cuts by the Fed this year, several major Wall Street banks this week forecast a rate cut in December, later than they previously anticipated. The changes were based on the US trade truce with China announced Monday, which along with comments by Trump during the US-Saudi investment forum in Riyadh drove gains for US stocks. And the below . . . .
US inflation rose less than forecast in April, with the consumer price index increasing 0.2% from March, driven by tame prices for clothing and new cars. The report suggests that companies are absorbing some of the extra costs of higher tariffs, and consumers are cutting back on leisure and discretionary spending. The temporary agreement to de-escalate the trade war with China has scaled back projections of how much damage tariffs will inflict on the economy, but economists still expect inflation to remain above the central bank’s target.
