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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
The Sydney session opened today with the AU/US 10-year yield differential close to flat, which is in the middle of the range it has traded within since November of last year (+22bp to -32bp).
- In early March, the differential hit a cycle low of -32bp when the RBA shifted to a more dovish stance at its March meeting, before moving higher due to global banking concerns in mid-March.
- The current AU/US 10-year yield differential, at around flat, is the tightest it has been since late February, and 18bp wider than the levels seen before the RBA's surprise 25bp rate cut earlier this week.
- Nonetheless, a simple regression of the AU/US cash 10-year yield differential versus the AU/US 1Y3M swap differential over the current tightening cycle suggests that the 10-year yield differential is currently around 25bp too low, i.e., flat Vs. fair value at 25bp.
- This apparent mispricing is due to the recent significant decline in the US 1Y3M rate and the resulting widening of the AU/US 1Y3M differential. The US 1Y3M swap rate is currently around 30bp lower, and the AU/US differential 30bp wider, than the levels seen at the end of last week.
Figure 1: AU/US Cash 10-Year Yield Differential (%) Vs. AU/US 1Y3M Swap Differential (%)
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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