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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 increased by 1bp to -23bps ahead of the Easter long weekend.

  • At -23bps, 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 15bps too low versus its fair value (i.e., -23bps versus -8bps).
  • 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 (%)

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Today, the AU-US 10-year cash yield differential has increased by 1bp to -23bps ahead of the Easter long weekend.

  • At -23bps, 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 15bps too low versus its fair value (i.e., -23bps versus -8bps).
  • 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 (%)

Keep reading...Show less