| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.283 | 3.35 | -0.067 |
| Australian 10-year bond (%) | 4.23 | 4.236 | -0.006 |
| Australian 30-year bond (%) | 4.973 | 4.936 | 0.037 |
| United States 2-year bond (%) | 3.806 | 3.752 | 0.054 |
| United States 10-year bond (%) | 4.389 | 4.405 | -0.016 |
| United States 30-year bond (%) | 4.879 | 4.91 | -0.031 |
LOCAL BOND MARKETS
Australia’s 10-year government bond yield held around 4.26% as investors weighed risks stemming from President Trump’s renewed criticism of the Federal Reserve. On Monday, Trump increased pressure on Fed Chair Powell and suggested that he might be removed, raising concerns about the central bank’s independence. This, combined with ongoing uncertainty over US trade policies, added to investor caution.
Meanwhile, traders are increasingly anticipating an interest rate cut by the Reserve Bank of Australia at its May meeting. While a 25 basis-point cut is widely expected, some are pricing in a more aggressive 50 basis-point move amid growing fears of a global slowdown driven by trade tensions. Investors are now awaiting Australia’s upcoming PMI data for further insight into the domestic economic outlook.
US BOND MARKETS
Treasuries and the dollar still posted smaller moves on Tuesday, showing greater stability after Monday, when investors were worried about the implications of any effort to replace the Federal Reserve Chair by President Donald Trump, who has berated Powell for being slow to cut interest rates. While the 10-year Treasury yield barely budged on Tuesday, two-year yields rose to 3.82% after lackluster demand for an auction.
The yield on the 10-year US Treasury note eased to below 4.38% on Tuesday, more than 8bps below its session-high as the possibility that the US may de-escalate its trade war against China softened investors’ capital flight to foreign assets.
Treasury Secretary Scott Bessent reportedly noted that the US could soon ease its tariffs against China as the current levies are not sustainable. The comments softened the selloff for dollar-denominated assets yesterday, as the combination of the ongoing trade war against China with White House threats against the Federal Reserve’s autonomy drove funds to pivot to gold and foreign markets. Still, members of the Presidential administration outside the Treasury remained aligned with calls for additional tariffs, lead by ongoing probes to levy copper, semiconductors, rare earth metals, lumber, and pharmaceuticals.
The traditional role of US Treasuries as the primary safe haven has been challenged during recent stress periods, marked by sharp yield spikes (10-year yield previously pushed above 4.5%) occurring even amidst equity downturns. Analysis points to forced deleveraging of highly leveraged basis trades (involving over $800B in net short futures) as the main technical driver behind these dislocations, rather than a fundamental abandonment by major foreign creditors.
Beyond technical pressures, the long-term sustainability of US fiscal policy is increasingly scrutinized, potentially eroding Treasury appeal. With significant projected deficits adding to the existing debt burden, the critical relationship between Treasury yields (‘r’) and economic growth (‘g’) comes into focus. A scenario where interest costs persistently outpace growth (r > g) signals a heavier debt servicing load, raising fundamental questions about the ultra-safe status of Treasuries for long-term holders compared to assets like gold.
