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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 2bps higher at +8bps after the cash US Tsy 10-year finished 11bps richer on Thursday. A reminder that cash tsys are closed in Asia due to the observance of a national holiday in Japan.
- At +8bps, the cash AU-US 10-year yield differential currently sits near the middle of the range of +/-30bps which has been observed since November.
- The recent underperformance in the ACGB 10-year can be attributed to a 50bp widening in the AU-US 3-month swap rate 1-year forward (1y3m) over that period. The 1y3m differential is a proxy for the expected relative policy path over the next 12 months.
- However, 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 9bps too low versus its fair value (i.e., +8bp versus +17bp).
Figure 1: AU-US Cash 10-Year Yield Differential (%) Vs. Regression 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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