Commentary courtesy of Spectrum Asset Management’s Lindsay Skardoon.
| Close | Prev Close |
Change | |
| Aust. 90 day bank bill% | 1.82 | 1.81 | 0.01 |
| Aust. 3 year bond%* | 2.08 | 2.07 | 0.01 |
| Aust. 10 year bond%* | 2.73 | 2.72 | 0.01 |
| Aust. 20 year bond%* | 3.15 | 3.14 | 0.01 |
| U.S. 2 year bond% | 2.24 | 2.24 | 0.01 |
| U.S. 10 year bond% | 2.89 | 2.86 | 0.03 |
| U.S. 30 year bond% | 3.16 | 3.14 | 0.02 |
| * Implied yields from Mar 2018 futures | |||
LOCAL MARKETS
The selloff in bonds is likely to continue. For the moment with political uncertainty and with equities rallying bonds are likely to drift higher in yield.
U.S. BOND MARKETS
Once again, the yield curve is coming under scrutiny. Most economists will tell you that a flat yield curve usually indicates a recession is on the way. But not so the Fed economists who believe that a flat yield curve is a mere representation of a benign reflection of the U.S. economy. Historically an inverted yield curve in almost all instances been followed by an economic recession. Either way, if the yield curve continues to flatten, investors will fret about the possibility of a recession.
For investors they will have to weigh up the risks of a ten-year bond rising through 3% and the political instability caused by Trump as the administration attempts to renegotiate a number of trade deals. With so much happening and given trade deals take a long time to negotiate a quick fix won’t be in the offing. The tariff deals over time may turn out to be noise. The real deal is what a rising ten-year bond does to the American economy. 