Australia Bond Yields Jump to Eight-Week High Before RBA Meeting

  • Nation’s 10-year bond yields testing resistance at May 9 high
  • Yield curve set to steepen in second half, NAB writes in note

Australian 10-year bond yields rose to the highest level in eight weeks before the central bank decides on monetary policy Tuesday.

The nation’s benchmark bonds dropped for a fourth day as investors waited to see whether the Reserve Bank of Australia will follow the hawkish tilt adopted by other policy makers in recent weeks. The 10-year yield touched 2.705 percent in early Monday trade, just shy of the May 9 high of 2.71 percent. Moving average convergence divergence, or MACD, has risen above zero and the signal line, meaning upward momentum remains in place.

The Federal Reserve is probably right that the recent slowing in U.S. inflation data is transitory, and the global macro backdrop continues to point to higher yields in the second half of 2017, National Australia Bank Ltd. wrote in a research note.

The unwinding of the Fed’s balance sheet and further commentary from central banks in terms of removing stimulus are likely to put additional upward pressure on bond yields, according to the note from head of interest-rate strategy Skye Masters and senior rates strategist Alex Stanley.

NAB reiterated its forecast for U.S. 10-year Treasury yields to reach 2.75 percent by year-end, while Australia’s will climb to near 2.85 percent, although it sees downside risks to these projections.

Japanese 10-year yields edged higher, tracking the general rising trend around the world.

“In light of the rise in overseas yields, JGBs are quite solid today,” said Katsutoshi Inadome, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Ltd. in Tokyo. “There’s some demand for dip buying, especially after Friday’s increase in Japanese yields.”

The BOJ’s decision to maintain the pace of its bond purchases for July is a supportive factor for Japanese debt, while markets are watching to see whether the central bank will tolerate further increases in two- and five-year yields above the levels at which it intervened in November, he said.

“People don’t expect the 10-year yield to rise above 0.1% for the time being,” Inadome said.

Rates at a Glance

Yield
(%)
Yield
Z-Score
Chg
(bps)
Chg
Z-Score
Japan0.0802.220.50.60
Australia2.6731.749.52.93
New Zealand3.0381.025.91.54
Singapore2.103-0.151.20.53
South Korea2.2360.743.01.11
China3.5700.33-1.0-0.55
Indonesia6.844-1.622.30.77
Malaysia3.952-0.074.82.89
Thailand2.481-1.020.90.48

— With assistance by Chikako Mogi

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