Summary:
Australian and U.S. bond markets posted mixed movements over the week, reflecting steady investor sentiment ahead of key global central bank decisions.
In Australia, the cash rate remained unchanged at 3.60%, while short-term funding costs eased, with the 3-month BBSW falling 7 basis points to 3.50%, suggesting ample liquidity and stable interbank conditions. Government bond yields rose modestly across most maturities, led by the 3-year yield, up 6 basis points to 3.37%, and the 10-year yield, up 4 basis points to 4.14%, reflecting expectations of a prolonged period of higher rates. The 30-year bond yield edged slightly lower to 4.83%, hinting at steady long-term inflation expectations.
In the U.S., Treasury yields also firmed, with the 2-year yield climbing 7 basis points to 3.50%, and the 10-year yield up 3 basis points to 4.01%, while the 30-year yield gained 2 basis points to 4.60%. The modest rise across the curve reflects resilient economic data and cautious positioning ahead of Federal Reserve policy signals.
On currency markets, the Australian dollar strengthened slightly, gaining 0.27 U.S. cents to close at US$0.6493, supported by improved risk sentiment and firm commodity prices. Overall, the data suggests stable monetary conditions and balanced investor expectations across both economies.
The Australian Bond spreads (3 & 10 years) continue to indicate positive sloping yield curve with significant steepening in the curve occurring from July 2023 (phase 1) and then accelerating from July 2024. The current spread continues to be at cyclical highs although lower than record highs observed in2021. From an investment perspective, steepening yield curves and a rebounding lending environment are likely to boost domestic economic environment and bank profitability. In a similar vein, the spread between the US 2 year bonds and US 10 Year bond has also been steepening since July 2023.
Figure 1: Aust. 3 yr minus 10 yr Bond Spread
Figure 2: Australian & US Bond Yields
Figure 3: US 10-year minus 2-year Bond Spread
