Australian bond yields sink further into uncharted territory

BORIS HORVAT/AFP/Getty Images
  • Australian government bond yields continue to fall, hitting fresh record lows on Thursday.
  • The move follows similar moves in sovereign bond markets on Wednesday, sparked by dovish commentary from the ECB and continued concerns over the global economy.
  • Financial markets continue to price in close to 50 basis points of rate cuts from the RBA by the end of next year.

Australian government bond yields continue to fall, hitting fresh record lows on Thursday.

Benchmark 10-year yields fell to as low as 1.722% earlier in the session, pushing deeper into uncharted territory following further declines in European and US bond yields on Wednesday.

Just over three months ago, Australian 10-year yields sat at 2.83%.

Investing.comAustralia 10-year ACGB Yield

“US 10-year bond yields fell to a fifteen month low of 2.37% on global growth concerns,” said Richard Grace, Head of International Economics at the Commonwealth Bank. “ECB President Mario Draghi also repeated that an accommodative stance is still needed for the Eurozone economy.”

Benchmark US 10-year yields fell to the lowest level since late 2017 while those for German bunds dipped further into negative territory, leaving them at levels not seen since October 2016.

“Concerns for the global growth are driving the flight to safety and bonds and safe-haven currencies are in demand,” said Edward Moya, Senior Market Analyst at OANDA.

“Right now, bonds are driving the move [in] all asset classes.”

Australian three-year yields — more reflective of the future direction of policy rates from the RBA — also hit record lows on Thursday, dipping to 1.37%.

Currently, overnight index swaps are pricing in nearly 50 basis points worth of rate cuts from the RBA by the end of next year.

The release of Australian job vacancy data for February, revealing that openings hit yet another record high, has done little to deter the view that the RBA will need to ease policy setting further.

On Wednesday, the Reserve Bank of New Zealand surprised markets, adopting an explicit easing bias, implying that interest rates could be cut again.

While the RBA still holds a neutral bias on the outlook for rates, the move across the Tasman has increased speculation that the RBA may soon follow in its footsteps.

With concern about the global economy still heightened, expectations for further RBA rate cuts is clearly acting to depress both bond yields as well as the Australian dollar.

The AUD/USD currently trades at .7083.

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