The spread between the yields on the two-year Australian and US government bonds hit multi-decade lows on Wednesday.
The spread fell from -90 basis points to -104 basis – the lowest since September 1997 – after the official data released at 02:00 gmt yesterday showed the cost of living in Australia, as represented by the consumer price index, cooled in the first quarter.
Evidence of weaker inflationary pressures boosted the probability of an early RBA rate cut, possibly in May. As a result, bond prices picked up a bid.
Notably, the yield on the three-year government bond yield hit a record low of 1.25 percent.
The narrowing of yield differentials indicates the path of least resistance for the AUD is to the downside.
