Australian Bond Exchange

ABX Weekly 12/02/2020Market Update   

As expected, the RBA has kept interest rates unchanged at 0.75% at its first meeting last week. What did surprise the market was the upbeat comments following the decision by the Governor and his hesitance to further decrease rates. This of course is music to my ears as I have just come back from Switzerland where they have had negative rates for way too long. On the back of his comments, we saw some very big swings in the Government bond yields with our 10-year bonds bottoming at 0.88%, moving up to 1.09% and currently the yields are sitting at just over 1%. This of course has once again flattened the yield curve which is in stark contrast to the equity market which is trading near its all-time high. 

Consumer and business sentiment eased of course on the back of the bushfires and the Coronavirus which should also have a negative impact on the 1st quarter of GDP. The weakness in the A$ has helped once again to absorb these shocks and we have fallen from a high of over $0.70 at the end of December to currently $0.66 against the almighty US$. 

On the global stage, the Coronavirus is still grabbing the headlines with some experts getting more confident that we should see some sort of peak of the outbreak in the next month. Global financial markets in the meantime have already taken a more positive view with stock markets around the world surging back up to near-record highs. US Fed Chairman Jerome Powell stated in front of the US House Financial Committee overnight that they are watching the coronavirus impact carefully, but he fell short of hinting that any imminent action was needed. 


European Desk 


In Europe, we had new ECB President Christine Lagarde adding to the chorus of calls for the EU members to start using their fiscal policy to support economic activity. In particular, the German powerhouse economy with its struggling car manufacturing industry is looking weaker by the day and the political pressure is growing to some fiscal measures to absorb some of the weakness. 

Bond yields in Germany in the meantime have moved somewhat closer to Zero over the past 6 months with current rates standing at minus 0.38% which is up from a low in September of minus 0.72%.