No change, local bond yields have continued to rise from their late August low, the RBA may be sticking to its guns to hold the cash rate at 0.1% through until 2024 but markets continue to believe they will hike sooner. The shorter-term bonds are leading the way with the Australian 3-year yields powering to fresh multi-month highs last week, around 6x the current RBA cash rate. Conversely the 10-years remain well below their late February high, in other words we are seeing a flattening of the yield curve as the gap narrows between the cost of short & long-term debt:
- A “Flattening yield curve” is often recognized as an indication of economic backdrops such as economic uncertainty, easing inflation fears and / or rising interest rates – the latter is currently dominating in our opinion.
NB a flattening curve is not great news for the banks who “borrow short and lend long” which would explain the sectors lack of gains over recent weeks and it will be interesting to see if they can throw off the shackles into Novembers dividends for 3 of the “Big 4”.
