| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.339 | 3.333 | 0.006 |
| Australian 10-year bond (%) | 4.2 | 4.218 | -0.018 |
| Australian 30-year bond (%) | 4.935 | 4.954 | -0.019 |
| United States 2-year bond (%) | 3.836 | 3.861 | -0.025 |
| United States 10-year bond (%) | 4.356 | 4.387 | -0.031 |
| United States 30-year bond (%) | 4.803 | 4.832 | -0.029 |
LOCAL BOND MARKETS
Australia’s 10-year government bond yield declined 5 bps on Thursday to 4.20%. Across the yield curve bonds were relatively flat.
Meanwhile, traders are increasingly anticipating an interest rate cut by the Reserve Bank of Australia at its May meeting. While a 25 basis-point cut is widely expected, some are pricing in a more aggressive 50 basis-point move amid growing fears of a global slowdown driven by trade tensions.
Investors are now awaiting Australia’s upcoming CPI and PMI data for further insight into the domestic economic outlook. Both equities and bond markets will be particularly focused on the quarterly CPI figure on Wednesday. The markets are expecting the RBA to cut in May. But next month’s cut is predicated on official consumer price data to be released this week, highlighting the importance of Wednesday’s report. The market consensus is for inflation to tick up 0.8% in the three months to March 31, pushing the annual pace from 2.4% to 2.3%. More crucial is the core inflation measure, which strips out the most extreme moves. That is expected to increase 0.7%, taking the annual inflation rate watched by the RBA from 3.2% to 2.9%.
US BOND MARKETS
The yield on the US 10-year Treasury note fell about 3bps to 4.29% on Friday, extending Thursday’s nearly 4 basis point decline, as traders closely monitored trade war developments and clung to hopes of possible de-escalation. Reports suggested that China was considering suspending its 125% tariff on certain US imports, though Chinese authorities denied any ongoing tariff negotiations. Meanwhile, President Trump reiterated that his administration was in discussions with Beijing.
At the same time, expectations for earlier Federal Reserve rate cuts provided additional support to bond markets. Fed Governor Christopher Waller stated he would back rate cuts if aggressive tariffs begin to weigh on the labour market. Similarly, Cleveland Fed President Beth Hammack signalled that the central bank could act as soon as June, provided there is clear evidence about the economy’s trajectory. Markets are currently pricing in a 25bps cut in June and anticipate a total of three cuts by year-end.
Swap contracts that aim to predict Fed actions priced in 15 basis points of easing — about 60% of a quarter-point rate cut — for the following meeting on June 17-18, up from around 13 basis points late Wednesday. The contracts priced in a combined 54 basis points of easing by September, four basis points more than previously, around 84 basis points by year-end, or at least three quarter-point cuts.
