Commentary courtesy of Spectrum Asset Management’s Lindsay Skardoon.
| Close | Prev Close |
Change | |
| Aust. 90 day bank bill% | 1.85 | 1.85 | 0.00 |
| Aust. 3 year bond%* | 2.10 | 2.12 | -0.02 |
| Aust. 10 year bond%* | 2.78 | 2.81 | -0.03 |
| Aust. 20 year bond%* | 3.19 | 3.21 | -0.02 |
| U.S. 2 year bond% | 2.25 | 2.24 | 0.01 |
| U.S. 10 year bond% | 2.88 | 2.87 | 0.01 |
| U.S. 30 year bond% | 3.15 | 3.13 | 0.02 |
| * Implied yields from Mar 2018 futures | |||
LOCAL MARKETS
Bonds could be somewhat sluggish, however, given the likely imposition of tariffs, bond yields are more likely to rise in the U.S. rather than rally and especially if the bond market catches a whiff of inflation. For Australia, this probably is not such a big problem, however, any significant rise in bond yields in the U.S. should see bonds rise here. Now may be a time to think of floating rate assets.
U.S. BOND MARKETS
For some of the Fed hawks such as Lael Brainard, they see the headwinds, now turning to tailwinds and are keen to raise rates, fearing inflation would rise as economic growth rolls in from the tax cuts (perhaps). If Lael is correct then the Fed will be raising rates, the carry trade will become more uneconomic and as such the yen could strengthen and bonds yields should slowly rise. And that’s also causing a headache for bond investors. Markets will become increasingly choppy.
