| Close | Previous Close | Change | |
|---|---|---|---|
| Australian 3-year bond (%) | 3.906 | 3.859 | 0.047 |
| Australian 10-year bond (%) | 4.483 | 4.443 | 0.040 |
| Australian 30-year bond (%) | 5.021 | 4.976 | 0.045 |
| United States 2-year bond (%) | 4.306 | 4.309 | -0.003 |
| United States 10-year bond (%) | 4.552 | 4.533 | 0.020 |
| United States 30-year bond (%) | 4.7657 | 4.741 | 0.025 |
LOCAL MARKETS
Australia’s 10-year government bond yield rose to around 4.51%, reaching over a four-week high, as investors digested the Reserve Bank of Australia’s latest policy announcement. As expected, the RBA cut its cash rate by 25 bps, the first reduction since November 2020, citing a significant decline in inflation, alongside weak economic growth and slower-than-expected recovery in private domestic demand.
Despite the rate cut, policymakers cautioned that upside risks remain. Recent labour market data has been unexpectedly strong, suggesting conditions may be tighter than previously thought. While today’s decision reflects progress on inflation, the Board remains cautious about further policy easing, emphasizing that monetary policy remains restrictive even after this adjustment. Meanwhile, in the US, Federal Reserve officials signalled that the central bank should be cautious about resuming interest rate cuts, prioritizing inflation control.
Australian Corporate bond issuance continues to be substantially oversubscribed. An issuance update from Bond Advisor illustrates the four issuances last week were up to 6 times oversubscribed. And why not. The Australian bond market is entirely following the lead and levels of the US bond market. You could be forgiven the RBA actually increased rates yesterday.
US MARKETS
The yield on the US 10-year Treasury note rose above 4.5% on Tuesday, as investors returned from the long weekend, betting that the Federal Reserve will delay any further interest rate cuts. Fed officials, including Christopher Waller, Michelle Bowman, and Patrick Harker, have emphasized the need for patience and a cautious approach, advocating for keeping interest rates on hold.
These comments align with the Fed’s stance during the January FOMC meeting and Chair Powell’s testimony before Congress, indicating that the central bank is in no rush to lower rates and needs to see further progress on inflation. Traders are now awaiting the release of the latest FOMC minutes this week for additional insights into the central bank’s policy direction. Meanwhile, investors continue to monitor developments in the trade war and the prospects for an end to the war in Ukraine, with the US and Russia holding their first high-level talks on the conflict since Russia’s invasion in 2022.
US bond markets have been exceptionally volatile year to date. Whipsaw, and more volatile than US equities markets. But what has been in stark contrast is the lack of spread movement. Some commentators are saying an eerie lack of volatility. That is, a calm before the storm.
