US and Australian government bonds found more buyers in Asian trade, as risk-off sentiment lingers following a global stock selloff last week.
Benchmark US 10-year bond yields dipped by another 3 basis points to 2.32%, as US bond yields declined across the curve.
Yields on US 10-years fell steadily last week, and are now around 7 basis points lower after briefly pushing through 2.4% last Monday.
The move in US Treasury yields coincided with fresh political uncertainty in Germany, following the collapse of three-party talks around forming a new government which would be led by Angela Merkel. The free-market liberal Free Democratic Party (FDP) pulled out of the talks, saying there had been a collapse in trust. ?There Merkel may now be forced to run a minority government and there is also the possibility of fresh elections.
Australian government bond yields followed their US counterparts lower, although the moves weren’t as steep.
Aussie 10-year bonds edged lower to hold at around 2.55%, still around a 7 basis point fall since late last week.
The yield spread between US and Australian 10-year bonds is now 22.5 basis points — down from over 50 basis points at the start of October.
The spread on shorter term 2-year bonds, with Aussie 2-years now yielding 1.783% — just seven basis points higher than US 2-years at 1.713%.
It marks a fall of around 40 basis points since the start of October, as the US Fed remains on track to raise rates in December while the time frame for further interest rate hikes in Australia becomes increasingly extended.