| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.237 | 3.266 | -0.029 |
| Australian 10-year bond (%) | 4.122 | 4.151 | -0.029 |
| Australian 30-year bond (%) | 4.835 | 4.841 | -0.006 |
| United States 2-year bond (%) | 3.791 | 3.829 | -0.038 |
| United States 10-year bond (%) | 4.293 | 4.328 | -0.035 |
| United States 30-year bond (%) | 4.8311 | 4.8704 | -0.0393 |
Overview of the Australian Bond Market
Yesterday’s May CPI print was an unexpected surprise with the headline figure at +2.1% YoY vs +2.4% YoY over the prior month, and well inside consensus expectations +2.3% YoY.
The trimmed mean figure was also lower, down to +2.4% YoY vs +2.8% YoY a month earlier. While this series is a partial read (some underlying data updated quarterly), it is encouraging and has emboldened markets to price in a more aggressive easing cycle.
At this stage a July cut (from 3.85% to 3.60%) seems a done deal if the swap market is to be believe with a cut priced at a 94% probability, up from 88% prior to the data print.
Markets are pricing at least four rate cuts (100 bps) over the coming year, with three of these expected before Christmas.
Australian dollar credit spreads continue to grind tighter, following similar themes as prior session post the Middle East de-escalation. Traders noted some bid interest for major bank seniors in the 4-5y part of the curve though volume was light. Expectations of subdued near-term supply, especially ahead of EOFY, are providing strong technical support for spreads. 5Y major bank senior spreads closed around +80bps and major bank T2s are in the +160a.
Global yields were muted overnight on little macro data to drive direction. The attention was on Fed Powell’s testimony which reiterated Fed’s cautious stance on monetary policy due to potential inflationary impact of tariffs, and separately announcing plans to reduce banks’ capital requirements.
Overview of the US Bond Market
The yield on the benchmark 10-year Treasury note settled at 4.294% on Wednesday, according to Tradeweb. It settled Tuesday at 4.291%, the lowest level since early May.
US 2Y down -0.5bp to 3.78% and 10Y down a -0.2bp to 4.29%. Elsewhere, 10y Bunds continue to underperform, with yields up +2bps to 2.57%, largely influenced by large government spending for defence and infrastructure.
The moves came while Federal Reserve Chair Jerome Powell gave his second day of testimony on Capitol Hill. Bets on a July interest-rate cut have risen modestly in recent days, after two Fed officials signaled they were open to the possibility. Powell has said recent economic data would likely have justified cutting, were it not for concerns higher tariffs might fuel price rises.
President Trump said Wednesday he is reviewing candidates to succeed Powell once his term ends, as the two men clash over monetary policy.
Money markets fully priced in two Fed cuts by the end of 2025, with a first move in September far more likely than next month — though bets on a July reduction edged up from last week.
The U.S. took a step toward easing some of the requirements placed on banks in the wake of the 2008 financial crisis, issuing a proposal that would let the largest lenders free up some of the capital they hold for times of market turmoil.
Banks have long lobbied for lowering what’s known as the supplementary leverage ratio, and Treasury Secretary Bessent has said the change would help buttress global markets by allowing banks to buy more Treasurys.
