Australian government bond yields are sinking back towards historic lows

JOSE LUIS ROCA / AFP / Getty Images

Asian markets are quiet. Stocks are modestly lower, commodity currencies such as the Aussie and Kiwi dollars are under pressure while the Japanese yen remains bid.

It’s a rare risk-off day in Asia, at least compared to recent weeks.

Like clockwork, government bond yields across the board are sliding yet again, aided by the caution being expressed across the region.

After popping back above the 2% level earlier this week, benchmark Australian 10-year government bond yields are also sliding lower, falling from a session high of 1.928% to as low as 1.879%. It currently trades at 1.885%.

Australia 10-year government bond yield, 30-minute chart

While heightened expectations that the Reserve Bank of Australia (RBA) will cut rates on August 2 have no doubt contributed the recent decline, Martin Whetton, an interest rate strategist at ANZ, believes the decline today in line with strength in US treasuries.

“The Aussie market is being driven by the global bid for bonds today, with yields moving roughly in line with the US,” Whetton told Business Insider, noting that “swap spreads are widening over the day, suggesting cash bond buying is leading the move”.

Whetton said there was no single driver to explain the move, but added that the risk-off tone in stocks may be a contributing factor.

Australian interest rate traders, as is the case with broader markets, are now awaiting the release of Australian Q2 CPI on Wednesday next week, a report that will go some way to determining if the RBA will cut rates the following week.

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