Australian bond yields continued to test multi-month lows last week as the Delta strain dampened economic optimism, it’s hard to imagine an improvement short-term but again we must remember major lows are often formed when things look their worse plus importantly MM has been calling this fall away in bond yields for months with the intention of establishing a bullish yield view across our portfolios:
- MM is looking for a catalyst to buy yields / sell bonds.
The acceleration to the downside by bond yields coincides with most economists expecting the RBA being forced to back pedal on its intention to slowly dial back support for the Australian economy, it will be a fascinating read on Friday when the RBA updates its economic forecasts (guesswork today I feel!). With 200,000-300,000 jobs likely to be lost in Sydney the Australian recovery could easily be delayed by over 6-months. However the local 10-years have already seen their yield plunge back towards the lows of 2021 and MM now believes a low is in sight, a few bad days of case numbers and no drop off in yield would be a catalyst to suggest economic pessimism may have reached an extreme.
We are looking to directly “buy bond yields” via an ETF in our Global Macro ETF Portfolio and by association tweaking our other portfolios further towards the “reflation trade” away from growth i.e. increase exposure to banks & resources.
