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Interest Rates / Bond Yields

Australian 3-year bond yields edged lower last week as hopes for rate cuts in the near future remain tenuous at best. Until we see signs that inflation is again turning lower, central banks are likely to be prudent and err on the side of caution regarding rate cuts. In the short term, Australian 3-year yields may have finished their bounce from the 3.5% area, but it is certainly not a clear picture at this stage.

  • 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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Australian 3-year Bond Yield

European Central Bank (ECB) President Christine Lagarde said last week that the central bank is on track to cut rates in the near term, although they are monitoring oil prices closely, i.e. high oil prices are inflationary and a headwind for rate cuts. The recent movements have felt significant at times, but we could argue the bounce in yields on caution around the path for rate cuts is normal market action, i.e. they’ve retraced about 50% of last year’s aggressive decline in the 4Q.

  • We expect the ECB to start cutting rates this year, which suggests that yields are currently rich.
MM is bearish on German Bunds in the medium term
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German Govt. Bund 10-Year Yield
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