Photographer: Brendon Thorne/Bloomberg

Australia Yields Signal Central Bank Tightening Looms

  • Extra yield on 3-year bond over cash rate is widest since 2010
  • RBA likely to increase its policy rate in May, ANZ forecasts

Investors in Australia’s bonds are boosting bets the central bank will join its global peers in shifting toward a more hawkish policy stance.

The extra yield on the nation’s benchmark three-year bonds over the central bank’s overnight cash rate jumped to 75 basis points Friday, the widest since May 2010. Retail sales and employment both grew at more than twice the pace economists predicted, according to the latest data published this month.

Recent figures provide a “very strong setting” to the economy for 2018, said Martin Whetton, a senior rates strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “Sentiment for global central banks is one of hiking in 2018 or unwinding of extraordinary monetary policy, so the Australia market has followed.”

The Bank of Canada raised its policy rate Wednesday for the third time since the middle of 2017, while the European Central Bank said it’s contemplating a tweak to its policy guidance. The RBA is likely to boost borrowing costs in May, “which justifies where the curve is to some degree,” ANZ’s Whetton said.

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