As the above chart shows the yield curve dropped significantly from the start of August through to towards the end of November and at the end of yesterday after the RBA dropped the cash rate another 25bps to 4.25%, the yield curve is basically the same as it was two weeks ago.
Whilst Australian equity markets have had a decent couple of weeks (the ASX200 was below 4000 on the 25th Nov) the same can’t be said for government bonds. Either way, its still about Europe and with so many uncertainties ongoing sharemarket volatility is bound to continue. I must say, that whilst 3 and 4 year bonds are just above 3%, you can still find term deposits around 6% which is a very attractive margin. Financial institutions are clearly prepared to pay a premium for capital so I’d be surprised if too many pass on the RBA rate cut to us mortgage owners!