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AUSSIE BONDS: AU-US Curve Correlation Tumbles Over Past Week

AUSSIE BONDS
Bullet

The cross-market curve correlation between Australia and the U.S. has collapsed over the past week, indicating a shift in focus toward domestic factors rather than global or U.S.-centric drivers.

  • This marks the fourth such episode in 2024.
  • The previous three episodes coincided with key Australian CPI releases. The first occurred in late April, coinciding with the release of Q1 CPI data. The second followed the May Monthly CPI release in late June.
  • The third dip emerged in late September after the August Monthly CPI print.
  • This latest decline, however, appears to be driven by concerns over Australian economic growth, culminating in today’s weaker-than-expected Q3 GDP print.  
  • In each of the previous instances, the cross-curve correlation quickly rebounded to near its peak levels, suggesting that short-lived dislocations have been the norm.
  • However, it’s worth noting that global yield curve correlations often weaken during transitions from synchronised policy tightening to divergent easing cycles. As central banks begin to chart different paths, the current low level of correlation may be more sustainable this time around.

 

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The cross-market curve correlation between Australia and the U.S. has collapsed over the past week, indicating a shift in focus toward domestic factors rather than global or U.S.-centric drivers.

  • This marks the fourth such episode in 2024.
  • The previous three episodes coincided with key Australian CPI releases. The first occurred in late April, coinciding with the release of Q1 CPI data. The second followed the May Monthly CPI release in late June.
  • The third dip emerged in late September after the August Monthly CPI print.
  • This latest decline, however, appears to be driven by concerns over Australian economic growth, culminating in today’s weaker-than-expected Q3 GDP print.  
  • In each of the previous instances, the cross-curve correlation quickly rebounded to near its peak levels, suggesting that short-lived dislocations have been the norm.
  • However, it’s worth noting that global yield curve correlations often weaken during transitions from synchronised policy tightening to divergent easing cycles. As central banks begin to chart different paths, the current low level of correlation may be more sustainable this time around.

 

Keep reading...Show less