The Australian 10-year bond contract on the Sydney Futures Exchange is on a bit of a tear this morning, up 15 basis points or 0.15% from the close on Saturday morning.
This fall in interest rates (futures up means rates down) has nothing to do with Australia, the Australian economy or the Reserve Bank – it is all because Larry Summers has withdrawn his name from the list of potential candidates to succeed Ben Bernanke at the Fed.
The reason is that Summers is seen as hawkish. That means the market views him as someone who would taper soon and raise rates in the US more quickly.
With him now out of the race, the other candidates such as Janet Yellen are seen as less aggressively hawkish and more likely to take their time with the withdrawal of stimulus from the US economy by the Fed.
Which means that rates in the United States and around the world are likely to be be lower for longer and Australian rates are going to get taken along for the ride.
The Australian Dollar has also spiked higher on the news, which is widely viewed as US dollar negative – it last traded at 93.42 up 1 full cent from Friday’s close.
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