Bill Evans is one of Australia’s most senior and respected economists. He is the chief economist for Westpac, having worked at the bank since 1991. Prior to that, he worked in the RBA’s research department and as a Treasurer at the Commonwealth Bank while it was still owned by the Federal Government.
So when he makes calls regarding rate cuts, GDP forecasts or other important economic matters, it probably pays to take notice.
This week, Evans forecast the US 10-year bond rate would rise earlier than previously expected.
Evans thinks the rash of positively-received vaccine results over the past fortnight will “impact markets…mainly from the perspective of demand and risk in the US and Europe.”
He noted a 20bps rise in longer-term US yields after announcements from Pfizer and Moderna, despite negative influences regarding rising numbers of new cases and the consequent possibility of additional restrictions in the major European economies and the US.
He referred to the latest news on vaccines as “game changers for the US economy and US markets.” They “point to markets favouring the improving vaccine outlook over the immediate threat from rising case-loads. And as we move through 2021 that dynamic will become more apparent.”
Evans now thinks US 10-year Treasury yields will rise a year earlier than expected, “with the 10 year bond rate rising from 0.80% in December through to 1.2% by end 2021” despite ongoing purchases of bonds by the US Fed.
The relationship between US 10-year rates and Australian 10-year rates has been quite strong over the past several decades. Should US yields rise, Australian yields will probably follow.
As the RBA remains committed to suppressing the local 3-year yield near 0.10% until 2022, he expects the yield curve to steepen. However, Evans is mindful that “markets may be less patient.”