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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 AU/US 10-year cash yield differential remains unchanged today at +23bp, sitting at its highest level since September of last year. The 10-year differential had traded within a range of -30bp to +20bp since November.
- The recent shift in the 10-year yield differential can be attributed to the divergent expected rate paths of the US Fed and the RBA. The RBA is in the process of catching 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%
- This idea is strengthened by the observation that a basic regression analysis of the AU/US cash 10-year yield differential and the AU/US 1Y3M swap differential throughout the current tightening cycle indicates that the 10-year yield differential is currently in line with its fair value.
Figure 1: AU/US 10-Year Yield Differential (%, Y-Axis) Vs. AU/US 1y3m Swap Spread (%, X-Axis)
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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