Commentary courtesy of Spectrum Asset Management’s Lindsay Skardoon.
| Close | Prev Close |
Change | |
| Aust. 90 day bank bill% | 1.77 | 1.77 | 0.00 |
| Aust. 3 year bond%* | 2.15 | 2.18 | -0.03 |
| Aust. 10 year bond%* | 2.86 | 2.90 | -0.04 |
| Aust. 20 year bond%* | 3.27 | 3.31 | -0.04 |
| U.S. 2 year bond% | 2.26 | 2.22 | 0.04 |
| U.S. 10 year bond% | 2.95 | 2.89 | 0.06 |
| U.S. 30 year bond% | 3.22 | 3.15 | 0.07 |
| * Implied yields from Mar 2018 futures | |||
LOCAL MARKETS
The Australian markets should be choppy today. U.S. bonds were weaker. Expect bonds to probably weaken a little early in the day before recovering.
U.S. BOND MARKETS
The markets are waiting for something and it’s hard to know just what. The Fed minutes showed that the Fed had more confidence in the economy and would need to keep raising rates to keep inflation under control. Almost all the members of the Committee believed that inflation would head towards the preferred 2% level. The markets are expecting a rate hike come March and the front end of the bond market is clearly signalling the expectation as the 2-year treasury is now at 2.28%. Meanwhile across the pond, the Europeans are also seeing interest rates start to move upwards.
The point of all of this is that rates and bond yields will continue to steadily rise. Increased issuance by the Fed and increased economic growth will mean that bond yields have a way to go yet. And if the economic growth target of 3% is not met and with falling taxation revenues then bond yields could really spike. 