Australian 3-year bond yields edged higher last week as hopes for rate cuts in the near future fade. Global inflation appears to be increasingly sticky, and this concern will increase if Middle East relations deteriorate further, sending oil prices higher in the process. In the short term, a test of 4% wouldn’t surprise us, but ultimately, we’re targeting another leg on the downside through 2024/5.
- No change; we still believe the local 3’s can test 3% in 2024/5, although the next downside leg will need a fresh economic/central bank catalyst.
MM remains bearish toward Australian bond yields in the medium-term
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US economic data has generally remained firm along with inflation through March, which will make it a tough ask for the Fed to follow their recent rhetoric and cut interest rates three times in 2024. However, we are conscious of the mantra “don’t fight the Fed”, and with the 2s yield already knocking on the 5% door, the risk/reward is starting to favour fading the recent advance in yields, which suggests rate-sensitive names may find support in the near future.
- We are looking for the Fed to start cutting rates this year which suggests yields are now currently too high.
MM is bearish on US 2-year Bond yields in the medium-term
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