Commentary courtesy of Spectrum Asset Management’s Lindsay Skardoon.
| Close | Prev Close |
Change | |
| Aust. 90 day bank bill% | 1.79 | 1.78 | 0.01 |
| Aust. 3 year bond%* | 2.07 | 2.07 | 0.00 |
| Aust. 10 year bond%* | 2.75 | 2.77 | -0.02 |
| Aust. 20 year bond%* | 3.18 | 3.20 | -0.02 |
| U.S. 2 year bond% | 2.27 | 2.23 | 0.04 |
| U.S. 10 year bond% | 2.91 | 2.86 | 0.05 |
| U.S. 30 year bond% | 3.18 | 3.15 | 0.03 |
| * Implied yields from Mar 2018 futures | |||
LOCAL MARKETS
Bonds could have a patchy day. Expect some selling however with the U.S. 10-year selling, then rallying, Aussie bonds may be more comfortable with a slight rally. Expect a slight back up before seeing some buying. The AUD 10-year is now 10 bps through (Ed: under) the U.S. 10-year. Higher rates in the U.S. are not proving that attractive yet for international investors, hence the Aussie bonds can probably rally on from here, especially if the Goldilocks period continues.
U.S. BOND MARKETS
For one very large investor, Japan, the U.S. treasury market no longer holds a strong appeal. You see, the Japanese are selling U.S bonds because they are fearful of deficits and don’t believe Mnuchin and his assessment of the U.S. dollar. Faith in the dollar has eroded. Japanese investors in the last three weeks sold some $19.6 billion of bonds and sold about $34 billion in the December quarter. The dollar has fallen some 5% against the yen so far this year. A weak dollar and high interest rates as in the U.S. should provide buying opportunities however at current levels investors remain wary.
What could attract Japanese investors would be to see bond yields above 3% and stabilised around that level.
