Australia two-year government bond yield hits record low ahead of RBA

• Australia’s two-year government bond yield hit record lows on Monday.
• A majority of economists polled by Reuters expect the RBA to keep rates unchanged today.  

The yield on Australia’s two-year government bond fell to a record low of 1.257% on Monday as re-escalation of US-China trade tension by President Trump boosted demand for bonds and other safe-haven assets.

As of writing, the two-year yield is trading at 1.29%.

The two-year yield is more sensitive to interest rate expectations. The slide to record lows, therefore, could be considered a sign the markets have priced in a 25 basis point rate cut. After all, the yield was 25 basis points below the official cash rate of 1.5% on Monday.

The Reserve Bank of Australia (RBA) has recently come under pressure to deliver an interest rate cut ahead of the federal election after disappointingly weak first-quarter inflation signaled that the economy is weakening.

The central bank has left policy at 1.50 percent since last easing in August 2016, and as many as 25 of 42 economists polled in late April expect this record spell of unchanged rates to extend on May 7, according to Reuters.