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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
AUSSIE BONDS
Today, the AU-US 10-year cash yield differential is tighter at +16bp after 10-year cash tsys finished 7bp cheaper in trade ahead of the weekend. It's important to note that cash tsys are closed in Asia today due to the observance of a national holiday in Japan. In contrast, 10-year cash ACGB is currently dealing 1bp richer at 3.98%, failing to sustain the break above the range it had been trading in since June 2022.
- At +16bp, the cash AU-US 10-year yield differential is currently within, albeit near the top, of the range of -30bp to +25bp that has been observed since November.
- The widening in the 10-year yield differential from -10bp in late May can be attributed to the divergent expected rate paths of the US Fed and the RBA. The RBA is expected to play catch up to the rate hikes that have already been implemented by the Fed. Currently, the RBA's cash rate stands at 4.10%, while the US Fed funds rate is at 5.0-5.25%.
- A simple regression of the AU-US cash 10-year yield differential and the AU-US 1Y3M swap differential over the current tightening cycle indicates that the 10-year yield differential is currently 11bp too tight versus its fair value (i.e., +16bp versus +27bp).
Figure 1: AU/US Cash 10-Year Yield Differential (%) Vs. Model Fair Value (%)
Source: MNI – Market News / Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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