As I wrote this morning, last night’s US bond market action was out of the box bullish with yields pole-axed across the curve. Whether this signifies an actual growth problem for the US and world remains to be seen but let’s assume not for a moment (that is the most likely) and that it is only a ratcheting back of market expectations for a cycle that will roll on a little more slowly. What does this mean for Australia?
The key outcome is that US bond yields have been smashed to pieces and interest rate rises have been pushed back with the obvious implication that the Australian dollar is going to remain under more upwards carry pressure than it would have otherwise.
This is already becoming obvious in the interest rate spreads. Australian bonds have all been heavily bid today but they can’t keep up with the US. The local 10 year is yielding 3.18% as I speak, down from 3.34% yesterday but the spread to the US is still widening to 1.09%:
