Summary:
Australia’s 10-year government bond yield was up circa 10 basis points for the week, ending at around 4.44%. There are two things going on domestically. Firstly, the international – rising global trade tensions dampened investors’ risk appetite. Secondly, China’s retaliatory tariffs on select US farm products took effect on Friday, following last week’s US tariff hike from 10% to 20% on Chinese goods. All negative for investor sentiment.
However, domestically, traders continued to assess the RBA’s policy outlook after strong economic data last week reduced expectations of rate cuts. Economic growth surpassed forecasts and accelerated for the first time in over a year. This followed the RBA’s February meeting minutes, which showed board members exercising caution and signalling that a rate cut is not imminent. However, RBA Deputy Governor Hauser warned that uncertainty over US tariffs could lead businesses and households to delay planning and investment, potentially weighing on economic growth.
Overall, the domestic factor won out over the international by weeks end.
The next RBA Board meeting and Official Cash Rate announcement will be on the 1st April 2025. As at the 7th of March, the ASX 30 Day Interbank Cash Rate Futures April 2025 contract was trading at 95.945, indicating a 14% expectation of an interest rate decrease to 3.85% at the next RBA Board meeting.
Exhibit 1: Australian 3Y/10Y Bond Yield
Bank bill swap rates fell back this week.
| TERM TO MATURITY | CLOSING RATE | WEEK | MONTH |
|---|---|---|---|
| 1 month | 4.0875 | -0.1075 | -0.135 |
| 3 months | 4.1182 | -0.0858 | -0.0918 |
| 6 months | 4.2217 | -0.0583 | -0.0459 |
Swap rates increased across the curve, somewhat outpacing the rises of their Commonwealth Government counterparts.
| TERM TO MATURITY | CLOSING RATE | Δ WEEK | Δ MONTH |
|---|---|---|---|
| 1 year | 3.844 | -0.044 | -0.209 |
| 3 years | 3.706 | 0.023 | 0.023 |
| 5 years | 4.012 | 0.059 | 0.059 |
| 10 years | 4.348 | 0.091 | 0.091 |
| 15 years | 4.517 | 0.099 | 0.099 |
AU and US Bond Yields Spread
What the chart below highlights is just how much the Australian bond market is tracking and mirroring the US market. And that also means the Australian bond market has been exhibiting a high degree of volatility since the start of the year. In fact, bond volatility has been materially higher than equities volatility.
Exhibit 2: AU and US Bond Yields Spread
