Via the always excellent Damien Boey at Credit Suisse:
The RBA has been telling us for some time that rate cuts lack utility. Many have interpreted this to mean that there is a new floor on rates. But an equally valid, and opposite interpretation of the same phrase is that perhaps there is no floor on rates. Bond market pricing seems to be swinging between the two extreme interpretations.
We think that the rally in Australian bonds still has more room to go, because:
- Long bonds are still not overbought, according to our proprietary duration risk appetite measure. And even if they were, history suggests that they can become extremely overbought before correcting.
