The global bond market selloff has continued in earnest over the past couple of weeks.
US 10s have decisively broken their post “taper-tantrum” downtrend on signs that the US economy is on the mend and the Fed on track to raise rates. US 10-year treasuries closed this morning at 2.43%, up 5 points. That’s the highest level in 12 months.
Likewise, rates in Europe are higher after ECB president Mario Draghi said last week traders needed to get used to the volatility. 10-year German Bunds finished at 0.96%, up 8 points while UK gilts are at 2.11%, up 5.
That’s dragged Australian rates sharply higher over recent days as well, with the entire curve suffering a selloff overnight.
Two-year Australian Government Bond Rates rose 6 points to 2.08% overnight, 3s are at 2.15%, and 5s are at 2.35%.
The 10 year bond has also sold off heavily, rising 12 points in overnight trade to sit at 3.09% this morning.
That’s an important technical level. If it breaks, Australian 10 year bonds – and the entire curve – may leap even higher.
Higher government bond rates will also pressure Australia’s interest rate swaps curve higher. Swap rates are the benchmark that corporate Australia borrows against.
The cash rate might be steady and the RBA may have an easing bias, but borrowing costs for corporate Australia just rose.