| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.39 | 3.36 | 0.02 |
| Australian 10-year bond (%) | 4.31 | 4.26 | 0.05 |
| Australian 30-year bond (%) | 4.98 | 4.94 | 0.04 |
| United States 2-year bond (%) | 4.01 | 4.00 | 0.01 |
| United States 10-year bond (%) | 4.48 | 4.48 | 0.00 |
| United States 30-year bond (%) | 4.94 | 4.95 | -0.01 |
Overview of the Australian Bond Market
Markets are now almost certain of a July interest rate cut after a week of underwhelming economic data, as the RBA’s former chief economist Luci Ellis questions whether the central bank has waited too long to ease policy. Financial markets now ascribe a 97% chance that the RBA will deliver the third rate cut this year when the board next meets July 7 to 8, cutting the cash rate to 3.6% from 3.85%.
Bets on another rate cut shot up last week after data released on Wednesday showed GDP grew by just 0.2% in the first three months of the year, far short of the RBA’s expectation for an expansion of 0.45%. The figures were followed by separate data on Thursday showing consumer spending barely grew in April, with economists warning the uncertainty from Donald Trump’s trade war could cause both businesses and households to rein in spending. Financial markets predict the central bank will cut the cash rate to 3.1% by the end of the year.
Last week, figures released on Thursday showed consumer spending rose by just 0.1% in April, underscoring concerns among economists that households were still cautious despite lower interest rates. The data are consistent with some loss of momentum in the consumer rebound that was evident in March quarter GDP data, and point to the risk that real consumption growth is slower than the RBA’s June quarter expectation of around 0.5% quarterly growth. Separate data released on Friday showed the total number of jobs across the economy fell 0.2% in the March quarter to 16.3 million.
Overview of the US Bond Market
The yield on the US 10-year Treasury note declined circa 3 bps 4.48% on Monday, as traders awaited the outcome of US-China talks taking place in London. The meeting follows a phone call last week between President Trump and President Xi, which has rekindled hopes of easing trade tensions. Broadly though, the entire curve was largely unchanged.
Market participants are also looking ahead to key US economic data, with CPI and PPI reports due later this week expected to provide fresh insight into inflationary pressures and the broader economic impact of the ongoing trade dispute. Additionally, attention is turning to this week’s Treasury auctions, with a $39 billion sale of 10-year notes and a $22 billion offering of 30-year bonds set to serve as a critical gauge of investor appetite for long-dated US government debt.
