AUSSIE BONDS: AU-US Curve Correlation High Going Into Wednesday’s CPI Print

In 2024, there have been three notable episodes of reduced cross-market curve correlation between Australia and the U.S., each suggesting a focus on domestic rather than global or U.S.-centric drivers.

• Each episode coincided with key Australian CPI releases. The first drop occurred in late April with the release of Q1 CPI data, while the second took place in late June, following the May Monthly CPI release.
• Both the April and June declines were brief, as cross-market correlation between the AU 3/10 cash curve and the U.S. Treasury 2/10 curve quickly returned to the upper end of its annual range.
• A third dip emerged in late September after the August Monthly CPI, though the cross-curve correlation has since rebounded to near its highest level this year, as ACGBs have been influenced by recent gains in U.S. yields.
• While the Q3 CPI data released in late October did not shift the focus of curve dynamics to domestic factors, next Wednesday’s October CPI release presents another opportunity to do so.
• Additionally, as global yield curve correlations tend to weaken during the transition from synchronised policy tightening to divergent easing cycles, the current elevated level of correlation appears unsustainable.