| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.447 | 3.424 | 0.023 |
| Australian 10-year bond (%) | 4.367 | 4.341 | 0.026 |
| Australian 30-year bond (%) | 5.053 | 5.02 | 0.033 |
| United States 2-year bond (%) | 4.031 | 3.965 | 0.066 |
| United States 10-year bond (%) | 4.521 | 4.473 | 0.048 |
| United States 30-year bond (%) | 5.0101 | 4.9821 | 0.028 |
Overview of the Australian Bond Market
Australia’s 10-year government bond yield fell a large 10 bps to around 4.26% on Friday, hitting its lowest level in over two weeks, as investors assessed the latest economic data. Retail sales unexpectedly declined in April, driven by unseasonably warm weather—which reduced demand for winter clothing—and fewer promotional events at department stores, highlighting growing consumer caution. Or does it??
Earlier this week, data also revealed that the monthly CPI came in slightly higher than expected in April, although it remained unchanged from the previous two months and marked the lowest level since November 2024. Despite lower borrowing costs and easing inflation, household spending remains subdued, with the April data suggesting a soft start to Q2. This persistent weakness prompted the RBA to cut interest rates by 25 bps to 3.85% earlier this month, after an initial rate cut in February. Markets are now pricing in at least three additional rate cuts this year, potentially bringing the cash rate down to 3.10%.
On retail sales, yes, it was a surprise and it sent government bond yields plunging 10 bps and helped spur optimism that the RBA will step up interest rate cuts. Retail turnover ended its 2025 run of gains falling -0.1%mth in April to be 3.8%yr higher. However, what needs to be borne in mind is two things. First, the weakness was centred on clothing & footwear and department stores, which the ABS attributed to warmer weather delaying purchases. Retail trade rebounded in Qld (1.4%mth) following weather-related impacts last month. Excluding Qld would have resulted in a -0.5%mth fall in retail turnover. Meanwhile, NSW posted its sharpest decline in over a year. Second, the suspicion is the April read has also been impacted by holiday-related disruptions. Supporting this, the weekly Westpac-DataX Card Tracker showed significant disruptions from the late timing of Easter and its proximity to the ANZAC Day public holiday, spending only stabilising in mid-May. Seems like the bond markets over reacted.
Overview of the US Bond Market
The yield on the US 10-year Treasury note swung around 4.4% on Friday, as traders assess the latest developments on the trade war and fresh economic data. President Trump claimed in a social media post that China had “totally violated” its agreement with the US, though he provided no further details. On Thursday, a federal appeals court temporarily reinstated Trump’s tariffs, just one day after a trade court ruled he had overstepped his authority.
Meanwhile on the data front, the PCE price index came roughly in line with expectations, with both the headline and core readings edging up 0.1% month-over-month. On an annual basis, both measures slowed, offering some relief over inflation pressures. Personal spending growth also eased to 0.2%, in line with forecasts. The data reinforced expectations that the Federal Reserve may have room to cut interest rates later this year. Considering the May month, the benchmark bond yield in the US is down more than 20 bps.
US Treasuries are on track for their first monthly loss this year as President Donald Trump’s abrupt policy shifts shake investor confidence. Worry about the budget deficit picked up in May tied to a tax-cut bill moving through Congress.US consumers hit the brakes in April while goods imports plummeted by a record as companies adjusted to higher tariffs. Inflation-adjusted personal spending rose 0.1% after rising 0.7% a month earlier. Separate data showed an almost 20% slump in imports, leading to a massive narrowing in the US merchandise-trade deficit in April. Meanwhile, the Federal Reserve’s preferred price gauge remained tame. The PCE price index, excluding food and energy, increased 0.1% from a month earlier. Compared with a year earlier, the core inflation gauge rose 2.5% from April 2024 — the smallest annual advance in more than four years.The figures reflect an undercurrent of anxiety among many American consumers about the economy after the weakest quarter for spending in nearly two years. Higher duties on imports had yet to show up more broadly in higher goods prices, as sentiment slumped and the outlook for personal finances stood at a record low. However, in April US businesses pulled back significantly on imports after months of pulling forward economic activity to avoid tariff policy. But here’s the irony, because of the way GDP is calculated, the April slump in imports of goods after months of front loading will likely give a boost to GDP in the second quarter. The Atlanta Fed’s GDPNow forecast pencilled in a 3.8% increase for the second quarter, which would mark a bounceback from the 0.2% drop last quarter.Meanwhile, Jamie Dimon warned that a crack in the bond market is “going to happen” after the US government and Federal Reserve “massively overdid” spending and quantitative easing. “I just don’t know if it’s going to be a crisis in six months or six years, and I’m hoping that we change both the trajectory of the debt and the ability of market makers to make markets,” he said Friday at the Reagan National Economic Forum. Dimon has said repeatedly in recent years that he is concerned about global deficit spending, and when asked Friday if so-called bond vigilantes are back, he said “yeah.”On the topic of JPMorgan, a survey of traders released during the week spotlighted that investors expect the sell-off in treasuries to worsen, keeping yields elevated. The survey’s all-client category for outright short positions — which includes central banks, sovereign wealth funds, real money and speculative traders — has climbed to the most since around mid-February. Traders rattled by the rout in long-dated Treasuries are turning more bearish as yields continue to oscillate around a key 5% psychological threshold.
The bearish sentiment comes on the tail of a decline in global long-dated bonds as investors grow concerned about widening government fiscal deficits. The US 30-year yield is lingering around 5% after soaring last week to 5.15%, the highest since October 2023, amid the US losing its top credit score, a steep selloff in Japan’s super-long bonds and the passing of Trump’s tax bill in the House. While long-bonds got some relief this week, the 30-year yield still hovering around 5% signals investors remain fickle. That’s being expressed in the options market too, where traders are paying higher premiums to hedge an extended selloff in long-bond futures versus a rally.