This week we intend to focus on bond yields identifying the bottom of economic worries as opposed to discussing the nuances of the current outbreak across Australia and overseas. Three things are front and centre in mind at present:
- We have a number of vaccines at our disposal hence while their rollout has left room for improvement we are not dealing with a huge unknown, perhaps just an annual booster shot at this stage.
- Australian 10-year bonds were trading ~1% before the various vaccine breakthroughs hence in our opinion the current sub 1.3% level is too cheap.
- Over recent years Central banks have often used the “whatever it takes” rhetoric leading us to wonder when, not if, others will follow the PBOC’s latest bout of additional stimulus.
We feel the 2 main variables today are the hugely contagious nature of the delta strain making it a significantly tougher adversary but this will ultimately lead to the positives of tighter border controls and a faster vaccine rollout, and secondly what variant comes next hence our view that booster shots will potentially become the norm in the years ahead.
MM is a buyer of bond yields into current weakness
