Commentary courtesy of Spectrum Asset Management’s Lindsay Skardoon.
| Close | Prev Close |
Change | |
| Aust. 90 day bank bill% | 2.00 | 1.99 | 0.01 |
| Aust. 3 year bond%* | 2.16 | 2.22 | -0.06 |
| Aust. 10 year bond%* | 2.66 | 2.72 | -0.06 |
| Aust. 20 year bond%* | 3.06 | 3.10 | -0.04 |
| U.S. 2 year bond% | 2.26 | 2.27 | -0.01 |
| U.S. 10 year bond% | 2.81 | 2.82 | -0.01 |
| U.S. 30 year bond% | 3.06 | 3.06 | 0.00 |
| * Implied yields from June 2018 futures | |||
LOCAL MARKETS
Bonds are likely to rally as investors look for stability and a safe haven. This rally will be transitory as the trade war impact is unknown at this stage. It is too early yet to measure the impact and the tough talk made by the Trump Administration won’t allow markets to settle easily.
U.S. BOND MARKETS
The unfolding trade war between China and the U.S. is very much in bond investors minds. China owns about 20% of the U.S. Treasury market and has suggested that it may slow or cease purchases. Such a gesture would have an immediate effect and cause bond rates to rise leading to higher interest rates, higher mortgage rates and higher borrowing costs for business. Such a move would also force a number of other major counterparties to re-evaluate their holdings as the growing deficit and a slowing economy would come sharply into focus.
Volatility is rapidly increasing at the expense of market gains. Risk off appears to be the direction of markets and bonds are rallying as Trump ratchets up the rhetoric.
