The enormous slide in Australian bond yields this year, in one chart

Eon Productions/IMDbGeorge Lazenby in On Her Majesty’s Secret Service (1969)
  • Government bond yields are tumbling around the world. Australia is no exception.
  • The scale of the decline in Australian yields has exceeded those seen in other major G20 nations this year.
  • On Wednesday, Australia’s 10-year yield fell to 1.481%, a record low and below the RBA cash rate at 1.5%.
  • Yields are declining on increased concern about the outlook for the Australian and global economies, along with growing expectations that central banks will have to start easing monetary policy to prevent a likely slowdown from turning into something worse.

Government bond yields are tumbling around the world. Australia is no exception.

As seen in the chart below from the Commonwealth Bank, not only have Australian 10-year bond yields fallen sharply this year, the scale of the move has easily exceeded those seen in other G20 nations over the same period.

Commonwealth Bank

“How good are Australian bonds?” asks the Commonwealth Bank’s rates strategy team, borrowing the rhetorical remark made by Australian Prime Minister Scott Morrison following the Coalition’s shock election victory earlier this month.

“Fixed income is back.”

By back, the Commonwealth Bank is alluding to the huge rally in Australian government bond prices this year, resulting in the decline in benchmark 10-year yields to a record low of 1.481% in Wednesday, below the current level of the RBA cash rate at 1.5%.

While the surge in Aussie bonds has been massive, it’s unfortunately not been driven by any particularly good news, reflecting instead increased concern about the outlook for the global and Australian economies astrade tensions between the United States and China continue to mount.

That’s led to increased speculation that major central banks will have to ease monetary policy settings to help prevent a likely global slowdown turning into an outright recession.

In Australia, financial markets are fully priced for the RBA to deliver 50 basis points of rate cuts by September, an outcome that would see the cash rate slide to 1%.

Another 25 basis point rate cut is now deemed as more likely than not by the second half of 2020.

Australian bonds are great as a result of investors thinking the outlook for the economy is not.

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