A further 0.5% increase in bond rates this year seems likely – Westpac

Inflationary expectations have been driving bond rates recently. A further substantial lift in these expectations seems unlikely however growth rates are lifting around the world and more realistic real rates are likely. A further 0.5% increase in bond rates this year seems likely with further comparable increases in the following years, in the view of economists at Westpac.

Key quotes

“We have lifted our target for the US 10 year bond rate by end-2021 from 1.5% to 1.8%. In turn, the expected rate by end-2022 has been increased from 1.75% to 2.40%.”

“We expect that higher rate profile to persist right out to end 2024 when we see the US 10 year bond rate settling at around 3% (reaching a sustainable peak before the first rate hike by the FED). That next cycle can be expected to be more gradual than previous cycles. In turn, that adjustment boosts our forecast for AUD 10-year bonds to 1.9% by end-2021, from 1.55%; 2.50% by end-2022; and 3.15% by end-2024.”