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AU/US 10-year Yield Differential Too Negative

AUSSIE BONDS
BulletMarketsFixed Income NewsHomepage

Cash Tsys have opened cheaper in Asia-Pac trade with the 10-year yield 7bp higher, leaving the AU/US 10-year yield differential +1bp at -15bp.

  • While there can be many variables at play in a cross-market differential, a simple regression of the AU/US 10-year yield differential versus the AU-US 12-month forward OIS differential over the current tightening cycle suggests that the 10-year differential is currently around 25bp too negative (i.e. -15bp Vs. fair value +10bp).
  • As highlighted in Figure 1, this richness in the 10-year yield differential is driven by the dramatic realignment in 12-month forward OIS in the U.S. versus Australia on the back of recent global banking concerns.

Figure 1: AU/US 10-Year Yield Differential (%) Vs. AU/US 12M Fwd. OIS

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Cash Tsys have opened cheaper in Asia-Pac trade with the 10-year yield 7bp higher, leaving the AU/US 10-year yield differential +1bp at -15bp.

  • While there can be many variables at play in a cross-market differential, a simple regression of the AU/US 10-year yield differential versus the AU-US 12-month forward OIS differential over the current tightening cycle suggests that the 10-year differential is currently around 25bp too negative (i.e. -15bp Vs. fair value +10bp).
  • As highlighted in Figure 1, this richness in the 10-year yield differential is driven by the dramatic realignment in 12-month forward OIS in the U.S. versus Australia on the back of recent global banking concerns.

Figure 1: AU/US 10-Year Yield Differential (%) Vs. AU/US 12M Fwd. OIS

Keep reading...Show less