| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.425 | 3.567 | -0.142 |
| Australian 10-year bond (%) | 4.181 | 4.235 | -0.054 |
| Australian 30-year bond (%) | 4.84 | 4.831 | 0.009 |
| United States 2-year bond (%) | 3.67 | 3.725 | -0.055 |
| United States 10-year bond (%) | 3.991 | 4.055 | -0.064 |
| United States 30-year bond (%) | 4.39 | 4.484 | -0.094 |
LOCAL BOND MARKETS
Australia’s 10-year government bond yield continues to plummet, falling 7 bps to 4.11%, with investors seeking a safe haven. More interestingly perhaps, the more policy sensitive 2-year government bond fell 8 bps to 3.33%, reflecting the reset regarding RBA policy settings.
Consequently, the yield curve has continued to steepen on Monday. The market is now ascribing a 15% probability of a 50 bps cut at the May meeting. The market significantly repriced rate expectations on Monday, now fully priced for a 25 bps easing at each of the RBA’s next policy meetings in May, July and August, and expect even more will follow later in the year. A few market participants have even suggested the RBA may make an out of cycle rates decision. When certain market players start talking about inter-meeting rate cuts, you know things are truly breaking down.
RBA Gov Bullock’s speech on Thursday (at 8pm AEST) will get great attention and ironically a hawkish stance could feasibly accelerate the selling in the AUD.
US BOND MARKETS
In a distinct break from the last 2 weeks, US bond yields rose on Monday as the bond market, just like the equities market, grappled with mixed messages from the White House / Trump on Monday . While US President Donald Trump touted talks with Japanese officials, the White House denied any plans to pause tariffs for 90 days, a rumour that had been circulating during the morning trade. At the close, the 10-year Treasury Note notched up a 22 bps increase in yield to 4.22%, the biggest one day move since September 2022.
Traders’ bets on how much the Federal Reserve will lower interest rates this year also fluctuated between three and five quarter-point cuts. Four reductions are now reflected in overnight interest-rate swaps this year, with the first fully priced in for June — and only a very small chance that the central bank steps in before its next scheduled policy meeting. Those bets come despite comments from Federal Reserve Chair Jerome Powell, who on Friday played down the prospect that the central bank will be cutting rates anytime soon.
UBS Group AG strategists expect corporate-bond spreads to reach levels last seen during the early part of the pandemic. Concerns that tariffs will significantly slow down the global economy shook credit markets last week, with gauges that track credit-default swaps surging by the most since March 2023 in both the US and Europe. Average investment grade spreads ended Friday at 109 basis points, the highest since August 2024. High yield spreads ended the week at 427 basis points, the highest level since November 2023. UBS now sees the possibility of corporate-bond spreads reaching between 160 to 170 basis points for investment grade and 600 to 650 basis points for high yield bonds by mid-2025.
Activity across primary markets, meanwhile, has slowed to a halt amid the volatility. For the third day in a row, investment-grade syndicate desks have been advising clients to refrain from any capital-raising efforts in the new issue bond market.
