The spread between the Australia and US bond yields is falling fast, courtesy of diverging interest rate cycles and the Australian economy’s vulnerability to the slowdown in China.
The gap between the 10-year Australia government bond yield and the US 10-year treasury yield fell to 51.2 basis points yesterday – the lowest since 1981 – and could rise further in the near-term as the Fed is expected to deliver four rate hikes by the end of 2019, while the Reserve Bank of Australia (RBA) is not seen raising rates in the next 12 months.
The spread inverted in February for the first time in 17 years.
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