| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.927 | 3.366 | 0.561 |
| Australian 10-year bond (%) | 4.360 | 4.301 | 0.059 |
| Australian 30-year bond (%) | 5.073 | 5.003 | 0.07 |
| United States 2-year bond (%) | 3.780 | -3.78 | |
| United States 10-year bond (%) | 4.285 | -4.285 | |
| United States 30-year bond (%) | 4.748 | -4.748 |
LOCAL BOND MARKETS
Australian employment increased 32,200 in March, following a drop of 52,800 the previous month. The unemployment rate held at 4.1%. Consensus was for 40,000 jobs created and the jobless rate to tick up to 4.2%. The labour market is a key component of inflation and the RBA has noted the surprising resilience of the employment figures after its board meeting this month. The trend has been cooling ever so slightly, but just like the Fed, the RBA has the luxury at the moment of not being rushed into rate moves. The quarterly CPI next week will be the next significant data point.
Australia’s 10-year government bond yield declined 5 bps to 4.28% as investors assessed the latest jobs report.
Money markets modestly dialled back expectations of a jumbo half a percentage point rate cut in May after robust jobs data. They are still fully priced for a standard quarter of a point easing next month and ascribe a 27 per cent chance of an oversized move, from 32 per cent before the data. The Australian dollar held steady at US63.55¢ and in the physical bond markets, the three-year edged up one basis point to 3.34 per cent. The 10-year return held at 4.24 per cent. Markets imply a total of 121 basis points of cuts by Christmas, equivalent to nearly five rate cuts.
US BOND MARKETS
US Treasuries pared their weekly advance in a low-volume, holiday-shortened session Thursday, with long-maturity yields rising most amid a rise in oil prices that boosted inflation expectations. The yield curve steepened notably, with the 30-year exceeding the five-year by nearly 90 basis points, aided by a large trade in Treasury futures. Money markets are pricing around 88 basis points of rate cuts by the Fed this year, equivalent to three quarter-point cuts and around a 50% chance of a fourth. This week’s moves in US Treasuries are offering some comfort that the securities are starting to re-assume their haven qualities, at least for now.
The yield on the US 10-year Treasury note rose circa 5 bps to 4.3%.
Earlier Thursday, Treasury yields retreated from session highs following a slate of mixed US economic data including weaker-than-estimated March housing starts and the April Philadelphia Fed Business Outlook gauge. An unexpected drop in new claims for unemployment insurance benefits signalled labour-market strength, however. Shorter-maturity yields — more sensitive to interest-rate changes by the Fed — began to decline after Trump, who has repeatedly said that the nominally independent US central bank should cut interest rates, criticized Powell via a social media post, saying his “termination cannot come fast enough.”
Meanwhile, the ECB lowered interest rates for the seventh time since last June as global trade tensions threaten to derail the region’s economic recovery. The deposit rate was decreased by a quarter-point to 2.25%. While euro-zone government bonds rallied after the ECB cut, those yields curve also steepened, reinforcing the trend in Treasuries.
