Aug 30

Australian Government Bond Yield Curve…bearish look

As the chart above shows it was another great month for bond investors. Over the last 3 months, yields have dropped around 100bps across the curve which for many bond funds (duration of at least 3 years) results in capital growth of at least 3% is addition to the usual income of around 5%pa.

This drop is the obvious outcome to the concerns around the economic slowdown in Europe and USA and the flow on effect here. The sharemarket has also dropped and the shape of this curve does suggest that our economy is not looking as rosy as many believe. Certainly it is suggesting that the reserve Bank is much more likely to decrease interest rates than increase but their public statements don’t quite suggest it as they continue to talk up inflation.

Either way, if there is one message this yield cure uis giving its that there are numerous risks around and that sharemarket and bond market volatility is likely to continue to all investors should hang on for the ride. BTW, term deposits have come off too, but no where near as much as government bond yields so on a relative basis they are still quite attractive.

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