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AU-US 10-Year Yield Differential In The Bottom Half Of Range

AUSSIE BONDS

Today, the AU-US 10-year cash yield differential has decreased by 3bps to -9bps after US tsys spiked to their highest levels for the year on Friday following the release of higher-than-anticipated PPI data.

  • The 2-year yield surged to 4.72% following the data release before concluding 7bps points higher at 4.64%. Meanwhile, the 10-year yield experienced a 5bps increase to 4.28% after reaching an intraday peak of 4.33%. It is important to note, however, that cash US Treasuries are closed for the Presidents Day holiday.
  • At -9bps, the cash AU-US 10-year yield differential currently sits in the bottom half of the range of +/-30bps which has been observed since November 2022.
  • A simple regression of the AU-US cash 10-year yield differential against the AU-US 1Y3M swap differential over the current tightening cycle indicates that the 10-year yield differential is currently 16bps too low versus its fair value (i.e., -9bps versus +7bps).
  • The 1y3m differential is a proxy for the expected relative policy path over the next 12 months.


Figure 1: AU-US Cash 10-Year Yield Differential (%)



Source: MNI – Market News / Bloomberg

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