Don’t say we didn’t warn you! Following the Dovish Fed last night, the Aussie bond boom is now shooting out of the atmosphere:
Next stop record low yields across the curve as the RBA is forced to cut by runaway markets. Despite the boom, there has been no curve steepening at all, again illustrating how far behind the curve is the RBA. The short end is now more inverted than at any time since the China bust and long end has not lifted at all:
Yield spreads to the US remain close to records and given the Fed is now priced but RBA cuts are not, there are more records ahead:
The amusing part about it is there are still no rate cuts priced! That’s how badly the lunatic RBA has distorted this market. My view remains that the Bank will be forced to cut four times over the next year or more which will mean a ten year yield at 1%.
In other words, the boom is only halfway through.
David Llewellyn-Smith is chief strategist at the MB Fund and MB Super which is long international equities and local bonds that will benefit from a weakening Australian economy and dollar so he is definitely talking his book.
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