Source: RBA
The above chart of the Australian Government Bond yields shows little change since 23 May with just a marginal flattening at the longer terms to maturity. No surprise given financial markets continuing its volatility combined with significant risks that include Greek bond default and poor economic news out of the US. Whilst this information doesn’t appear to present a direct concern to Australia we have our own potential problems with teetering house prices and the high savings rates resulting in poor local demand.
With RBA Cash rate at 4.75% and bond yields not exceeding 5% until around the 5 year mark the market does not view much likelihood of a cash rate hike in the short term. The global economy and local data will need to significantly improve before a rate rise is likely. Certainly with house price data showing the start of a downward trend (which reduces household wealth) and little sign of demand pull inflation (most inflation is cost push which the RBA cannot control) there’s every chance cash rates could be hold for quite some time…or at least lets hope so or the divergence of our two speed economy will widen.