Summary:
Over the course of the week, the yield on the US 10-year Treasury note fell by 17 basis points to 4.24%. And it was all largely driven by dovish comments from Fed officials. In an interview, Fed Governor Christopher Waller said he’d support rate cuts in the event aggressive tariff levels hurt the jobs market. Fed Bank of Cleveland President Beth Hammack told CNBC on Thursday the central bank could move on rates as early as June if it has clear evidence of the economy’s direction.
On the basis of these latter comments, the rally on Thursday was led by short to intermediate-maturity tenors, which are more sensitive than longer-maturity yields to Fed interest-rate changes. Yields on two-year notes declined as much as 8 basis points to just below 3.79%, remaining inside Wednesday’s range. The five-year yield declined nearly 10 basis points below 3.93%.
Swap contracts that aim to predict Fed actions priced in 15 basis points of easing — about 60% of a quarter-point rate cut — for the following meeting on June 17-18, up from around 13 basis points late Wednesday. The contracts priced in a combined 54 basis points of easing by September, four basis points more than previously, around 84 basis points by year-end, or at least three quarter-point cuts.
In US economic data Thursday, weekly jobless claims tallies suggested the labour market remains on solid ground. Speaking later Thursday, Fed Governor Christopher Waller said layoffs linked to tariffs wouldn’t be surprising and could warrant rate cuts, but are unlikely to be visible before mid-year.
Exhibit 1: Australian 3Y/10Y Bond Yield
Bank Bill Swap Rates
| TERM TO MATURITY | CLOSING RATE | Δ WEEK | Δ MONTH |
|---|---|---|---|
| 1 month | 3.95 | -0.0625 | -0.1408 |
| 3 months | 3.8797 | -0.0385 | -0.2394 |
| 6 months | 3.8953 | -0.0908 | -0.399 |
SWAP RATES
| TERM TO MATURITY | CLOSING RATE | Δ WEEK | Δ MONTH |
|---|---|---|---|
| 1 year | 3.4133 | 0.0497 | -0.338 |
| 3 years | 3.3 | 0.038 | -0.306 |
| 5 years | 3.68 | 0.018 | -0.236 |
| 10 years | 4.1475 | 0.0155 | -0.1158 |
| 15 years | 4.3688 | 0.0205 | -0.0757 |