Less than two weeks ago, benchmark Australian 10-year government bond yields were close to 3%, sitting at the highest level since early 2017.
Now they’re back at 2.61%, the lowest level in two months.
The daily chart below tells the story.
Australian bonds, like other perceived safe-haven assets, have been in high demand, driven by renewed political chaos in Italy that has roiled financial markets.
“The savaging of Italian sovereign debt has rewritten the direction of major markets,” said analysts at ANZ Bank in a note.
As Business Insider’s Paul Colgan noted earlier today, Italian two-year bond yields saw their biggest lift in more than 20 years on Tuesday, larger than any move during the GFC or the European debt crisis.
European stocks fell, with some Italian banks down around 6% while the overall Milan FTSE MIB index slumped 2.5%.
Other risk assets weren’t immune with stocks and commodities under pressure, while the Japanese yen and Swiss franc, well known safe-haven plays during times of market turmoil, were in high demand.
Those safe-haven flows also found their way into US treasuries and German bunds, said ANZ.
“Safe-haven demand saw US Treasury yields fall sharply, down 10–14 basis points (bps) across the curve. Yields in Europe outside of Italy were down 3–12bp,” it said.
“Australian markets will be a passenger in this ride.”
Right now, that’s clearly playing out.
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