Australian 3-years edged lower last week, taking more of its lead from the FOMC than the strong local employment data. However, a cursory glance at their chart shows they’ve been in a holding pattern through 2024, trading midway between 3% and 4%. Our preferred scenario is that we will see a test of the former over the coming months.
- The local 3’s can test 3% in 2024/5, although the next downside leg likely needs an economic/central bank catalyst.
MM remains bearish toward Australian bond yields in the medium-term
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US bonds rallied last week, sending yields lower following the market-friendly FOMC minutes, largely devoid of major surprises. Much has been written about interest rates/bond yields over recent times, but the 2s are still trading at the same level as they were in late 2022. With three rate cuts by the Fed now expected in 2024, it will require weaker economic data to drive further expectations of rate cuts through 2025/6 and, hence, yields lower.
- No change; we are targeting a test of 3.5% by the short-dated 2s through 2024/5, as they correct the strong advance since mid-2021.
MM is bearish on US 2-year yields medium-term
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