25 Jun 2014
Australian yields drop sharply on Tuesday - RBS
FXStreet (Łódź) - The RBS team of analysts comment that despite little obvious catalyst the Australian bond market rallied significantly on Tuesday.
Key quotes
"Weekly consumer confidence data was firmer, iron ore prices are somewhat firmer in recent sessions, confidence in the Chinese economy was boosted by a stronger flash manufacturing PMI in June reported on Monday, and global yield trends have been mixed in recent sessions."
"This continues a trend in recent months where the 2yr yield spread between Australia and the US has narrowed significantly to a low since August last year (chart below)."
"Some of this narrowing may reflect the tightening in global credit spreads and fall in global market volatility towards record lows, encouraging investors to seek the higher-yielding markets in Australia."
"The recent strength in the AUD may have helped lower inflation and growth expectations in Australia. However, the AUD also fell from its recent high on Monday, although it is still at the higher end of its range over recent months and for the year."
"The slide in the AUD on Tuesday combined with a fall in 3yr to 10 yr bond yields of around 10bp to a low since August and June last year respectively suggests that the market's confidence in the growth outlook for Australia has deteriorated relatively significantly."
Key quotes
"Weekly consumer confidence data was firmer, iron ore prices are somewhat firmer in recent sessions, confidence in the Chinese economy was boosted by a stronger flash manufacturing PMI in June reported on Monday, and global yield trends have been mixed in recent sessions."
"This continues a trend in recent months where the 2yr yield spread between Australia and the US has narrowed significantly to a low since August last year (chart below)."
"Some of this narrowing may reflect the tightening in global credit spreads and fall in global market volatility towards record lows, encouraging investors to seek the higher-yielding markets in Australia."
"The recent strength in the AUD may have helped lower inflation and growth expectations in Australia. However, the AUD also fell from its recent high on Monday, although it is still at the higher end of its range over recent months and for the year."
"The slide in the AUD on Tuesday combined with a fall in 3yr to 10 yr bond yields of around 10bp to a low since August and June last year respectively suggests that the market's confidence in the growth outlook for Australia has deteriorated relatively significantly."