Australian Bond Exchange

ABX Weekly 17/07/2019

Market Update    

Good morning, US equities fell after US President Trump said he could impose more tariffs on China. US interest rates and the US dollar rose after strong US retail sales data. The combined news sent AUD/USD and NZD/USD lower.  

The AFG mortgage index for June 2018 released a week ago is showing emerging signs of a recovery in the home loan market with home loan lodgements increasing 12% from the Mar-2018 quarter to the June-2018 quarter. The Coalition’s First Home Loan Deposit Scheme proposal, APRA’s removal of the 7% interest rate floor for mortgage serviceability assessments and the RBA’s interest rate cuts coming over the last couple of months should have a positive note for the outlook of residential settlements. 

Market Movements 

ASSET  CURRENT  1 Week change 
Aus Cash Rate  1.00  0.25 
3M BBSW  1.13  0.00 
Aus 3yr Gov  0.98  0.06 
Aus 3yr Corp  1.52  0.04 
Aus 3yr HY  4.81  -0.13 
US 10yr bonds  2.12  0.09 
AUD  0.70  0.01 
S&P 200  6673  0.75 


Bond Update   

US 2yr treasury yields rose from 1.82% to 1.87%, while 10yr yields rose from 2.08% to 2.12%. Markets continued to price 31bp of easing at the 31 July meeting.  

Australian 3yr government bond yields eked a lower range following the RBA minutes, between 0.93% and 0.96%, while 10yr yields bounced from 1.39% to 1.45%. Markets continued to price only a 15% chance of an RBA rate cut in August.  

The NextDC 2022 bonds are now available for retail investors. Speak to your advisor today for both the fixed rate and floating rate bonds. 

 Powell told U.S. lawmakers last week that the U.S. economy is “in a very good place” and central-bank officials want “to use our tools to keep it there.” Draghi said last month that failing to act would mean “resignation, acceptance of defeat.” Bank of Japan Governor Haruhiko Kuroda recently told Bloomberg News he can deliver bigger stimulus if necessary. But more than 700 rate cuts worldwide over the past decade mean benchmarks are already around historical lows and there’s not much conventional ammunition left. The Fed’s benchmark, for example, is half the level it was at prior to past downturns. 

Asian Desk 

Asian government bonds follow global sell-offs after better-than-expected U.S. inflation data and as some investors start to assess how easing by major central banks could bolster consumer prices. 
Longer-dated bonds lead losses in Australia, New Zealand and Japan. Treasuries gain across the curve after sell-off.

European Desk
There was some more good news for the UK economy where wages grew at the fastest pace in 11 years while unemployment remained at the lowest level since the min 1970s. Normally such results would ring alarm bells for increasing inflation expectations, but the negative sentiment has cautioned any optimism