Commentary courtesy of Spectrum Asset Management’s Lindsay Skardoon.
| Close | Prev Close |
Change | |
| Aust. 90 day bank bill% | 1.78 | 1.77 | 0.01 |
| Aust. 3 year bond%* | 2.10 | 2.13 | -0.03 |
| Aust. 10 year bond%* | 2.83 | 2.86 | -0.03 |
| Aust. 20 year bond%* | 3.27 | 3.30 | -0.03 |
| U.S. 2 year bond% | 2.25 | 2.25 | 0.00 |
| U.S. 10 year bond% | 2.87 | 2.92 | -0.05 |
| U.S. 30 year bond% | 3.16 | 3.21 | -0.05 |
| * Implied yields from Mar 2018 futures | |||
LOCAL MARKETS
Bonds should have a steady rally as the U.S. was stronger on Friday.
U.S. BOND MARKETS
Bond investors can remain comfortable for a while yet. With steady but slow increases in short term rates, bonds can slowly back up in yield. The cathartic moment for bonds won’t be inflation (although it may play a part); it will be a combination of rotating out of Treasuries, a massive blowout in the deficit, significantly increased issuance and a slowing economy. Caution is required. Especially if all this happens at a time when the ECB is no longer buying bonds and the Fed has ceased its purchases.
The test ahead for markets generally will be to see how markets behave when the free cash from the major central banks ceases and, in fact, start to hike rates.