Bond yield curve indicates possible end of year rate cut: Secret Agent

Bond yield curve indicates possible end of year rate cut: Secret Agent
Bond yield curve indicates possible end of year rate cut: Secret Agent

Yields down since last month and almost back to levels in April 2015.

As part of our continued series on interest rates, Secret Agent has been tracking movements in the bond yield curve since late last year. If you don’t know why bond yields are so important for property investors, download our yield curve report.

So far this month, short, medium and long term treasury bond yields are down by between 0.06 percent for 90 day bills and 0.16 percent for 10 year bonds. This is shown in Figure 1.

Click to enlarge

Bond yield curve indicates possible end of year rate cut: Secret Agent

Note that lower bond yields are not necessarily a bad thing for bond investors, as yields and prices of bonds move in opposite directions. In fact, over the Easter period in particular, many bonds saw a large increase in price. One major cause was the announcement by the big banks (ANZ in particular) that bad debt charges are higher than market consensus. This drove a lot of investors to seek out bonds as an alternative, in turn driving up bond prices.

The continued downward trend on bond yields means that yields across the board are nearly back to levels seen in April 2015 (Figure 2), which was just before the RBA last cut interest rates.

Click to enlarge

Bond yield curve indicates possible end of year rate cut: Secret Agent

This again indicates low investor confidence and a bleaker outlook for the economy. It also increases the likelihood of a RBA interest rate cut before the end of the year.

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Interest Rates

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