Commentary courtesy of Spectrum Asset Management’s Lindsay Skardoon.
| Close | Prev Close |
Change | |
| Aust. 90 day bank bill% | 1.96 | 1.96 | 0.00 |
| Aust. 3 year bond%* | 2.11 | 2.11 | 0.00 |
| Aust. 10 year bond%* | 2.71 | 2.72 | -0.01 |
| Aust. 20 year bond%* | 3.11 | 3.12 | -0.01 |
| U.S. 2 year bond% | 2.29 | 2.29 | 0.00 |
| U.S. 10 year bond% | 2.84 | 2.83 | 0.01 |
| U.S. 30 year bond% | 3.08 | 3.06 | 0.02 |
| * Implied yields from June 2018 futures | |||
LOCAL MARKETS
Bonds should be steady on the day. With a looming rate hike in the U.S. bonds may soften later in the week.
U.S. BOND MARKETS
The problem for Trump’s administration is that the economy is receiving mixed signals and all the time the deficit is growing. At some point, the bond market will awaken from its slumber and question how the deficit will be reduced and what policies are required to reduce the deficit. At the moment interest costs are around 5% GDP, however, a spike in rates would significantly alter that ratio. Capital will be needed and that means either interest rates rise significantly, or the currency weakens significantly or that the U.S. economy is stimulated to grow in excess of 4%.
Bonds greeted the mixed messages of economic activity with a shrug and sold a little. The bond market, however, is now starting to focus on the cracks appearing.
