Commentary courtesy of Spectrum Asset Management’s Lindsay Skardoon.
| Close | Prev Close |
Change | |
| U.S. 2 year bond% | 2.13 | 2.11 | 0.02 |
| U.S. 10 year bond% | 2.84 | 2.80 | 0.04 |
| U.S. 30 year bond% | 3.11 | 3.07 | 0.05 |
| 90 day bank bill% | 1.77 | 1.77 | 0.00 |
| Aust. 3 year bond%* | 2.15 | 2.16 | -0.01 |
| Aust. 10 year bond%* | 2.84 | 2.82 | 0.02 |
| Aust. 20 year bond%* | 3.26 | 3.26 | 0.00 |
| * Implied yields from Mar 2018 futures | |||
U.S. BOND MARKETS
The ten-year rose back to levels seen Monday with the 10-year trading at 2.885% before retracing to 2.85%. The 10-year bond auction today was not well bid and that may also have affected the day’s trading activity. There is an expectation that with increased bond issuance and now with further issuance due to an increase in the debt ceiling that bonds will move higher and the increase in yields could be quite significant especially with the Fed no longer being a major buyer of bonds later in the year as QE windup ramps up.
Increased bond rates mean increased borrowing rates for companies and increased mortgage rates for householders. The U.S. economy could genuinely slow despite the tax cuts and especially if those tax cuts as it appears will be paid out as dividends and share buybacks, not wage increases over the medium term for all employees.
LOCAL MARKETS
Bonds are vulnerable to a savage selloff that could come at some point but probably not today. The currency is at risk as both U.S. 10-year bonds and Aussie 10-year bonds are flat. Expect some movement over time in either the currency or bonds and most likely both.
