Commentary courtesy of Spectrum Asset Management’s Lindsay Skardoon.
| Close | Prev Close |
Change | |
| Aust. 90 day bank bill% | 2.00 | 2.00 | 0.00 |
| Aust. 3 year bond%* | 2.16 | 2.16 | 0.00 |
| Aust. 10 year bond%* | 2.68 | 2.66 | 0.02 |
| Aust. 20 year bond%* | 3.07 | 3.06 | 0.01 |
| U.S. 2 year bond% | 2.27 | 2.26 | 0.01 |
| U.S. 10 year bond% | 2.85 | 2.81 | 0.04 |
| U.S. 30 year bond% | 3.08 | 3.06 | 0.02 |
| * Implied yields from June 2018 futures | |||
LOCAL MARKETS
Bonds are likely to drift and probably go higher in yield. With a large refunding and funding occurring this week in the U.S. all eyes will be on how those auctions fare. Given the size of the auctions and expected falling demand, yields will have to rise to attract buyers. All bets are off of course if the Trump administration reverses direction and seeks to impose tariffs. The Aussie bond market is not immune to U.S. bond market rises and will drift higher if the U.S. moves higher. It is also worth noting that as U.S. rates and yields rise, the cost of funding for Aussie banks also rises. If this trend continues then mortgage rates are likely to rise.
U.S. BOND MARKETS
This week we are likely to see the most amount of issuance ever taken by the Treasury. Some $294 bio has been slated to be issued this week in bills and treasuries. Accordingly, bonds have weakened as yields drifted higher.
