The last month has shown a bit of a bounce-back in the sharemarkets but as the above yield curve indicates, so far its more of a dead cat bounce and there’s a long way to go. The yield curve is still negatively sloping to beyond two years indicating the market is expecting a few rate rise drops by the Reserve Bank in the months/years to come. I tend to think the Reserve Bank will stay on hold once again on Tuesday simply because I think they’d rather wait and see how this latest Euro rescue package pans out. The early signs are positive but there are still a few concerns, notably the yields on Italian bonds are still very high (see below) and if they stay high then that spells trouble for Europe as Italy is the biggest debt holder in Europe and the third biggest in the world (behind Japan and USA) and they can’t be bailed out.
Italian 10 Year Bonds – 28 Oct 2011
Anyway, there’s a long long way to go before Europe is aywhere near out of trouble and the details of their latest plan aren’t even finalised so I imagine the Australian bond market will be tentative for some time yet and equity markets will continue their high volatility.