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Interest Rates / Bond Yields

Australian 3-years continued to chop around last week, taking more of their lead from US data and Fed comments rather than local news. Local bonds have remained in a tight holding pattern since the start of 2024, trading between 3% and 4%. Our preferred scenario is we see another leg lower by yields through 2024/5 of a similar magnitude to the decline from its post-COVID high in November last year.

  • We continue to believe the local 3’s can test 3% in 2024/5, although the next downside leg will likely need an economic/central bank catalyst.
MM remains bearish toward Australian bond yields in the medium-term
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Australian 3-year Bond Yield

UK inflation is falling steadily and could even reach the Bank of England (BOE) 2% target in the coming months, but interest rates remain at 5.25%, and the UK has entered a recession. The BOE’s dogged focus on crushing inflation is a warning to people expecting/hoping interest rate cuts will occur sooner rather than later; e.g., the US is nowhere near a recession, yet markets are still hoping for 2-3 cuts in 2024—this particular can may get kicked much further down the road!

  • We are looking for the BOE to cut rates well before the RBA, perhaps even in June.
MM is bearish on UK 10-year Gilt yields medium-term
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UK 10-year Gilt Yield
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