The global bond market sell off which has quietly driven Japanese and German 10 year bonds back into positive rate territory over recent weeks, and which saw US 10-year rates break trendline support Friday, has this morning landed on Australian shores.
The benchmark Australian Commonwealth Government Bond (ACGB) 10-year rate which spent the last 6 weeks hovering between 1.8% and 2% has risen to 2.11% – its highest level since the Brexit vote.
Bond yields rise when prices fall.
Skye Masters, the NAB’s head of interest rate Strategy wrote in a note to clients this morning that bond rates are rising because the longs – bond-holders believing their assets will increase in value and keep a lid on yields – are feeling pressured.
“Longs [are] being challenged amid uncertainty over further monetary stimulus and Fed commentary,” Masters wrote.
In particular she said “market expectation for central bank support is being challenged following the ECB surprise last week (in failing to add to asset purchase targets), hawkish US Fed commentary and speculation that the BoJ may follow the ECB and not provide further stimulus at its meeting on 21st September”.
So bond rates are rising and Australian rates have today joined the party.