dimanche 15 mars 2015
Debelle: Global And Domestic Influences on the Australian Bond Market
Posted on 15:48 by nice news
Today I will talk about some of the global and domestic factors that are influencing conditions in the Australian bond market. I'll start with a discussion on the decline in global bond yields that we've seen over the past year or so before turning to focus on how these and other developments have played out in the Australian bond market.
Global Influences
At the beginning of 2014, the 10-year Treasury yield in the US was around 3 per cent. At that yield, investors were getting some compensation for duration risk in the form of a term premium; that is, some compensation for uncertainty about the future path of US monetary policy. However, over the course of 2014 the yield declined steadily, reaching a low of 1.64 per cent in early 2015, close to the historical lows reached in July 2012. With a yield of 1.64, investors were getting little or no compensation for term risk or the risk of inflation. Indeed, one could argue that the term premium was even negative. There was no meaningful compensation for uncertainty about the path of US monetary policy or inflation.
This decline in US yields was also evident in nearly all advanced economies and occurred despite some notable variations across countries at the shorter end of the curve (Graph 1). Over recent months, it has looked more like yields in Germany driving those in the US and elsewhere rather than the traditional relationship of US yields driving those in other markets.
In recent weeks, some of the decline in yields has been unwound in the US and a few other economies such as the UK, but 10-year yields in the euro area have fallen further to reach new historic lows, with the 10-year yield in Germany now noticeably below that in Japan. As has been remarked on frequently, the 10-year yields in Spain and Ireland are currently below that in the US.
Global Influences
At the beginning of 2014, the 10-year Treasury yield in the US was around 3 per cent. At that yield, investors were getting some compensation for duration risk in the form of a term premium; that is, some compensation for uncertainty about the future path of US monetary policy. However, over the course of 2014 the yield declined steadily, reaching a low of 1.64 per cent in early 2015, close to the historical lows reached in July 2012. With a yield of 1.64, investors were getting little or no compensation for term risk or the risk of inflation. Indeed, one could argue that the term premium was even negative. There was no meaningful compensation for uncertainty about the path of US monetary policy or inflation.
This decline in US yields was also evident in nearly all advanced economies and occurred despite some notable variations across countries at the shorter end of the curve (Graph 1). Over recent months, it has looked more like yields in Germany driving those in the US and elsewhere rather than the traditional relationship of US yields driving those in other markets.
In recent weeks, some of the decline in yields has been unwound in the US and a few other economies such as the UK, but 10-year yields in the euro area have fallen further to reach new historic lows, with the 10-year yield in Germany now noticeably below that in Japan. As has been remarked on frequently, the 10-year yields in Spain and Ireland are currently below that in the US.
Debelle: Global And Domestic Influences on the Australian Bond Market
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