Australian bond yields fall to a 13-month low, defying central bank expectations

TraderKnows
TraderKnows
08-16

On August 15, the yield on Australian 10-year government bonds dropped to 3.88%, a 13-month low. Despite the Reserve Bank of Australia's high interest rates and refusal to consider rate cuts soon, the bond market disregarded its hawkish stance.

On August 14th, the Reserve Bank of New Zealand unexpectedly announced a rate cut, intensifying market expectations that the Reserve Bank of Australia might adopt an accommodative policy. Additionally, expectations that the Federal Reserve might cut rates as early as next month provided an opportunity for other major economies to relax policies.

Overnight index swap data shows that the market widely believes the Reserve Bank of Australia will initiate a series of rate cuts in December.

However, some analysts believe that betting on a rate cut by the Reserve Bank of Australia may be premature.

Chris Read, an economist at Morgan Stanley, said, "The future policy of the Reserve Bank of Australia might shift from its current focus on inflation to a greater emphasis on spending and labor market data."

Notably, the latest data shows that Australia's employment growth in July exceeded everyone's expectations, further complicating the central bank's decision-making environment.

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