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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
After having tested the upper boundary of its trading range since November 2022 around mid-June, the AU-US 10-year yield differential has now slipped back into negative territory. As of the time of writing, this differential stands at -3bp, a notable contrast to the +25 to +30bp range observed in mid-June.
- The contraction in the 10-year yield differential starting mid-June can be attributed to a nearly 60bp reduction in the AU-US 1Y3M swap differential. This trend aligns with the decline in expectations for the RBA's terminal rate, which shifted from 4.66% to 4.18% during that timeframe.
- However, over the past week, the AU-US 1Y3M swap differential has surged by 17bp.
- Applying a simple regression of the AU-US cash 10-year yield differential against the 1Y3M swap differential throughout the current tightening cycle reveals that the current 10-year yield differential is approximately 13bp tighter than its fair value (specifically, -3bp compared to +10bp).
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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