BOND_01.12.25.csv
| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.899 | 3.888 | 0.011 |
| Australian 10-year bond (%) | 4.562 | 4.533 | 0.029 |
| Australian 30-year bond (%) | 5.129 | 5.115 | 0.014 |
| United States 2-year bond (%) | 3.504 | 3.51 | -0.006 |
| United States 10-year bond (%) | 4.046 | 4.017 | 0.029 |
| United States 30-year bond (%) | 4.706 | 4.6677 | 0.0383 |
Overview of the Australian Bond Market
Australian government bond yields rose on December 1, 2025, tracking global moves as Japanese debt weakness spilled over after BOJ hike signals. The 10-year yield climbed nine basis points to 4.60%, the 2-year five to 3.85%, 5-year six to 4.12%, and 15-year nine to 4.89%. The AUD/USD dipped 0.16% to 0.654, steadying near 0.6566 highs amid US manufacturing contraction but resilient yields. Overnight, AUD/USD ranged 0.65395-0.656, with support at 0.6415 and resistance at 0.6580-0.6630, as bulls held despite USD buying on equity recovery.
China’s PMI data weighed, with manufacturing at 49.2 (still contracting) and non-manufacturing dipping to 49.5, highlighting risks to Australia’s key trading partner amid waning stimulus. Yet, domestic strength persists, with Q3 GDP forecast Wednesday at +0.7% q/q—the fastest in three years—fueled by capex surge and building approvals. October approvals (+12% m/m forecast) and y/y (+12.4%) due Tuesday underscore housing momentum, targeting 1.2 million new homes by 2029 to ease shortages driving record prices and rents. Net exports contribution (+0.1%) and current account (-AUD13.7bln) also release Tuesday, potentially boosting sentiment if positive.
RBA’s prolonged hold at elevated rates contrasts global easing, with economists split on next move amid sticky inflation and tight labor. Markets price 50-50 hike odds late 2026, aligning some with HSBC’s Bloxham urging fiscal restraint to avoid earlier tightening. Governor Bullock and Assistant Governor Kent testify Wednesday, post-GDP, offering clues. Productivity lags mean demand could fuel prices, capping potential growth at 2%. Westpac notes consumer spending up, with households spending more income share, aided by wealth effects.
Broader macro favors emerging markets like Australia, with fiscal orthodoxy drawing inflows. EM inflation below developed levels, surpluses, and 2.5-point growth edge support, as US deficits expand under Trump policies. South Korea and UAE bonds trade near or inside Treasuries, with Australia’s metrics—55% debt-to-GDP, 6% surplus—attractive. Portfolio shifts to EM debt per Athey at Marlborough and Weisman at MFS highlight G7 erosion, with EM rates 2.1 points higher despite lower inflation.
November S&P Global PMIs release soon: manufacturing final (51.6 prior), services (52.7), composite (52.6), signaling expansion. October trade Thursday: goods balance (AUD3938mln forecast), imports (+1.1%), exports (+7.9%). Overall, Monday’s yield rise reflects external pressures but domestic acceleration could pressure rates higher if data beats, blending with EM convergence trends.
Overview of the US Bond Market
Bond yields climbed on December 1, 2025, as Treasuries weakened amid a Japanese debt rout and hawkish Bank of Japan signals, with the 10-year yield rising eight basis points to 4.09%. The move came despite reduced risk appetite in equities and crypto, as global bonds reacted to BOJ Governor Kazuo Ueda’s rate-hike hints, pushing Japan’s yields higher and spilling over. Two-year yields advanced five basis points to 3.53%, while 30-year yields jumped eight to 4.74%, steepening the 2s-10s curve by about three basis points to +55.6bps. The Bloomberg Dollar Spot Index wavered little, with the euro up 0.1% to $1.1610 and the yen strengthening 0.5% to 155.45 per dollar.
The ISM manufacturing PMI’s drop to 48.2 in November, with a higher prices-paid reading, bolstered yields as input costs rose, underscoring persistent inflation amid contracting activity. This sets a cautious tone ahead of Friday’s PCE report, expected to confirm stable pressures, potentially influencing the Fed’s December decision. Markets price in a likely 25-basis-point cut, supported by data suggesting the economy avoids recession while easing progresses. However, macro shifts highlight emerging markets’ appeal, with select AA-rated sovereigns like the UAE and South Korea outperforming developed credits in total returns, driven by fiscal conservatism and lower inflation. Investors demand record-low premiums over Treasuries for these, with spreads at 31 basis points for AA issuers, reflecting diversification demand as US debt metrics worsen under expanding deficits.
Portfolio managers like James Athey at Marlborough are shifting to EM debt, citing Mexican pesos and Chilean bonds for orthodoxy absent in G7 nations, where debt-to-GDP ratios climb. Erik Weisman at MFS Investment Management echoes this, trimming G-10 exposure for high-grade EM amid US figures resembling fragile credits. Emerging economies run current-account surpluses and faster growth—2.5 percentage points above developed peers—while keeping rates 2.1 points higher despite lower inflation, a rare reversal. South Korea’s five-year dollar bonds priced at 17 basis points over Treasuries in October, and Abu Dhabi’s 10-year at 18, with China erasing premiums entirely.
JPMorgan’s Nick Eisinger sees structural improvements in high-quality EMs gaining recognition. In the US, Treasury client surveys show net long positions shrinking to two-month lows ahead of policy clarity, with asset managers paring longs by $23.5 million per basis point across tenors per CFTC data. Leveraged funds reduced shorts in the bond contract. Dealers expect steady coupon auction sizes for August-October, aligning with April guidance. Overall, while Monday’s yield rise reflects cross-market pressures and resilient US data, broader convergence with EMs signals eroding safe-haven status, with investors like Marco Ruijer at William Blair noting EMs’ primary surpluses versus G7 deficits as a key edge.
