Australian bond yields dropped to record lows amid a rally across debt markets before the Bank of Japan’s most anticipated monetary policy decision since Haruhiko Kuroda’s first as governor in April 2013.
The yield in Australian 10-year notes dropped to an unprecedented 1.839 percent on Friday, and that on the three-year paper slid to 1.437 percent.
BOJ policies that have sent the Asian nation’s yields below zero and are driving a rush for income in bond markets, including the U.S. and Australia. Almost 80 percent of analysts surveyed by Bloomberg forecast Governor Haruhiko Kuroda and his board will expand the central bank’s record stimulus program Friday.
“Markets feel quite nervous today ahead of an expected policy easing announcement by the BOJ this afternoon, and we have seen significant volatility,” said Andrew Ticehurst, an interest-rate strategist at Nomura Holdings Inc. in Sydney. The Australian rates market is pricing in further easing by the Reserve Bank of Australia over the next 18 months, he said.
Swaps traders are pricing in a 66.5 percent chance of a rate reduction by the RBA next week, compared with 64 percent at the end of last week.