Australian bonds give rate hawks the bird

Thursday, 29 January 2015

So far the bond market is concerned, RBA rate cuts got more likely overnight not less. It’s been a wild ride for bond over the past 24 hours as the knee jerk reaction to yesterday’s CPI gave bears a moments in the sun, only for clouds to quickly close over and a renewed deluge of buying drove yields to new record lows. Here’s the chart:

Yes, the 2 year bond is now pricing two full cuts, asap, with yields at record lows. Most of the damage occurred before the RBNZ doved-up and the icing was ladled on after.

And the curve flattening continued with the 2/5 year slope closing to as little as 6bps:

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.