Interest Rates / Bond Yields

Another quiet week for Australian bond yields as they rotate around the 3% level first reached in mid-2022. Until the economic picture or RBA rhetoric changes we believe it’s unlikely bonds will travel far in the months ahead i.e. they are consolidating after yields surged through 2021/2022.

• No change, we believe local 3-years will test 2.5% over the coming months but the downside is likely to be limited with plenty of economic weakness already being built into prices.

In similar fashion to their short-dated Australian peers, US 2-year Bonds have continued to consolidate their recent gains over the last month (yields lower) as investors try and second guess what comes next e.g. can the Fed negotiate a soft landing as it reigns in inflation or is a painful recession the next economic chapter.

• No change, we believe US 2-year bond yields are now set to rotate around the 4% area following a similar path to the local bond market.
• However, after trading sideways for 8 weeks we believe the risk/reward is slowly moving towards another push toward the downside.