Investors bet on the imminent rate cut by the Reserve Bank of Australia, with Australian bond yields falling to a 13-month low
It is reported that the Australian bond yields have fallen to a 13-month low as the market widely speculates that the Reserve Bank of Australia is likely to cut interest rates. The yield on the benchmark 10-year government bond has dropped to 3.88%, while the yield on the three-year government bond has also declined by 5 basis points. Despite the Reserve Bank of Australia keeping interest rates unchanged and indicating that a rate cut is not ruled out, bond investors are skeptical of its hawkish stance, especially after the Reserve Bank of New Zealand cut rates. The market's bets on the RBA's easing policy have increased. Investors are awaiting the upcoming employment report to assess the possibility of a rate cut
According to the Vzaimoponimanie APP, as speculation grows outside that the Reserve Bank of Australia is about to start cutting interest rates, Australian bond yields have fallen to their lowest level in 13 months. Data shows that the yield on Australia's benchmark 10-year government bonds fell by 5 basis points to 3.88%, the lowest level since July 2023; the yield on the policy-sensitive three-year Australian government bonds also dropped by 5 basis points.
Last week, the Reserve Bank of Australia kept interest rates unchanged for the sixth consecutive time, maintaining the cash rate at its highest level in 12 years, and reiterated that it "does not rule out any possibilities" in its policy. The rate-setting committee stated in a statement: "Policy will need to be sufficiently restrictive until the committee is confident that inflation is sustainably moving towards the target range." In addition, RBA Governor Bloxham said at a press conference that there are still risks to inflation returning to target, which may take a longer time, and interest rates may need to remain high for longer.
However, bond investors are not convinced by the relatively hawkish stance of the Reserve Bank of Australia. Betting on a more dovish stance from the RBA intensified after inflation slowed, prompting the Reserve Bank of New Zealand to cut its official cash rate on Wednesday, opening up space for other major central banks to ease policy, including the expectation that the Federal Reserve will cut interest rates as early as next month.
Australia and New Zealand Banking Group's Senior Fixed Income Strategist Kenneth Crompton in Sydney said: "Investors' interpretation of Australia is that the Reserve Bank of New Zealand's shift yesterday was more dovish than expected, while U.S. inflation data was weaker than expected."
Currently, investors are turning their attention to the Australian employment report to be released later on Thursday to observe whether the labor market has loosened, which could increase the likelihood of a rate cut by the Reserve Bank of Australia. Overnight index swaps suggest that the RBA will begin a series of rate cuts in December