JCB find the YieldReport to be an invaluable summary of all debt market activity. Whilst we are focussed on the highest grade bonds it is important to see what is..Angus Coote, Executive Director, JCB Active Bond Fund
Markets are leaning hard into a July rate cut, and bond yields are telling the story loud and clear. Australian 3-year yields jumped 6.9 bps to 3.362%, while the 10-year climbed 8.7 bps to 4.244%.
The 30-year yield? It surged +9.5 bps, hitting 4.96% – its highest in nearly two months.
Guess what? Rate cut odds now sit at 97%. Markets are almost certain the RBA will trim the cash rate to 3.6% at its July 7-8 meeting.
That confidence comes after last week’s weak GDP print (+0.2%) and flat consumer spending data. And now, former RBA chief economist Luci Ellis is questioning whether the central bank has waited too long to ease.
With traders pricing in a move to 3.1% by year-end, the bond market is clearly bracing for a more dovish path. So, while equities tread water, the bonds are marching—and they’ve got the data to back them.
Overview of the US Bond Market
Treasuries briefly trimmed losses on Monday along with crude following a Wall Street Journal report that Iran signaled it wants an end to its conflict with Israel. But bonds resumed their slide as equities rallied, pushing yields up two to six basis points across maturities in late afternoon New York trading.
The yield on 10-year US bonds rose three basis points to 4.43% on Monday, underperforming German peers. Traders pared bets on interest-rate cuts from the Federal Reserve, pricing 46 basis points by the end of the year, compared to 49 basis points on Friday.
After last week’s closely watched sale of 30-year debt saw stronger-than-expected demand, the 20-year auction was unremarkable. Its 4.942% yield matched the indicated level, and non-dealers were awarded 86.6%, a touch better than recent sales.
The developments add to risks for Treasury investors nervous about whether President Donald Trump’s policies will stoke inflation and widen the US budget deficit, pushing traders to demand a steeper premium on longer maturities.
US Treasuries are down since tensions between Israel and Iran turned into a direct conflict on Friday and selling pressure is likely to have a lasting effect if past episodes of clashes are any guide. Iran’s direct strikes in April 2024 and another flare-up between the two nations in October had also pushed up US yields rapidly and kept them elevated over a 30-day period, Bloomberg analysis showed.
Ahead of the latest escalation in geopolitical tensions, traders had boosted their bets on Fed rate cuts. While those wagers receded slightly on Friday, money markets are still projecting two quarter-point reductions before the end of the year. Oil prices remain significantly above levels before Israel’s attacks began late last week, stoking worries around the risk of persistently higher inflation.
Two-year yields edged up about two basis points to 3.97% as traders pared wagers on Fed easing, pricing in about 45 basis points of cuts by the end of the year, compared with 49 basis points on Friday.
