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Jul 30

Australian Government Bond Yield Curve update

I haven’t looked at the government bond yield curve for a while so here it is. I’m sure you don’t need the chart to know that the economic outlook was looking much better back in March and April, then it has since (i.e. the curve was sloping upwards much steeper back then). With bond yields below 5% for maturities out to, say, 6 years, the market does not appear to hold any strong views of strong inflation and therefore any strong likelihood of interest rate rises. With double dip recession and deflation talk in the US, China’s rate of economic growth slowing down, and Europe continuing its talk of being fiscally austere, its no wonder the local economic outlook isn’t as bullish as the newspapers suggest.

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1 comment

  1. BB

    And today I overhear a conversation rationalising that a flattening of the yield curve is actually a net positive for equities, because? “corporate profits are stable to strong and the lower bond yields reflects in a lower risk free rate therefore adding further support to current equity yields and overall valuations” hmmm….

    Back to reality however…… at least some of this has been passed onto business borrowers in the form of lower long dated commercial fixed rates!

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