| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.805 | 3.861 | -0.06 |
| Australian 10-year bond (%) | 4.364 | 4.443 | -0.08 |
| Australian 30-year bond (%) | 4.916 | 4.993 | -0.08 |
| United States 2-year bond (%) | 4.072 | 4.096 | -0.02 |
| United States 10-year bond (%) | 4.249 | 4.298 | -0.05 |
| United States 30-year bond (%) | 4.507 | 4.556 | -0.05 |
* Implied yields from March 2025 futures. As at 29 January.
LOCAL MARKETS
Australia’s 10-year government bond yield held its recent decline to around 4.4% following the release of the monthly CPI data. Headline inflation rate held at an annual 2.5% in January, slightly below forecasts of 2.6%. Meanwhile, the trimmed mean measure of core inflation ticked up to 2.8% in January from 2.7% in December.
The data was mixed and did little to shift expectations for future interest rate moves. Also, the monthly report covers only a portion of the full CPI basket, with a stronger focus on goods rather than services.
On the monetary policy front, the Reserve Bank of Australia cut its cash rate by 25bps to 4.10% last week, but struck a cautious tone on further cuts, warning that disinflation could stall. Currently, markets see only a small probability of the RBA cutting rates at its April meeting, but pricing in around a 70% chance of an easing in May.
US MARKETS
The yield on the US 10-year Treasury note stabilized around 4.3% on Wednesday after declining for five consecutive sessions, as investors awaited key economic data to provide more clarity on the outlook. Markets are focused on the second estimate of fourth-quarter GDP growth, due Thursday, and the PCE price index report on Friday.
The benchmark yield fell to its lowest level in over two months on Tuesday after data revealed US consumer confidence dropped 7 points to an eight-month low of 98.3 in February, far below the forecasted 102.5, marking the third straight monthly decline. Growing economic concerns have led markets to price in two 25-basis-point rate cuts from the Federal Reserve this year.
Meanwhile, escalating tariff threats from US President Donald Trump have fuelled safe-haven demand for bonds, with Trump announcing that tariffs on Canada and Mexico “will go forward” once the one-month delay period expires next week.
There has been a growing long position amassed in fed funds futures over the last week. Open interest, or the amount of futures positions held in the May contract, has risen by over 50% since the start of last week as traders price in more central bank easing over the course of this year. Fed swaps are now pricing in around 21% probability for a May rate cut versus just an 8% chance a week ago. Up until this week, a narrow range of Fed policy outcomes have kept yields in a tight range.
