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AUSSIE BONDS: AU-US Curve Correlation Vulnerable Ahead Of Q3 AU CPI

AUSSIE BONDS
RegionGlobalBulletAPACFixed Income BulletsAustraliaMarkets

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.
  • Based on recent patterns, Wednesday’s upcoming Q3 CPI release has the potential to refocus the curve driver on domestic factors.
  • However, as global curve correlations typically weaken with the shift from policy tightening to divergent easing cycles, the current high level of correlation appears unsustainable.

 

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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.
  • Based on recent patterns, Wednesday’s upcoming Q3 CPI release has the potential to refocus the curve driver on domestic factors.
  • However, as global curve correlations typically weaken with the shift from policy tightening to divergent easing cycles, the current high level of correlation appears unsustainable.

 

Keep reading...Show less