Prashant Newnaha, Senior Asia-Pacific Rates Strategist at TD Securities, notes that the Australian 10yr bond yield broke below 2.50%, a level that has historically served as a strong floor.
Key Quotes
“We run through the list of offshore factors that should keep Australian 10yr ACGB yields below 2.50%. Macro risk remains elevated and from a cross asset perspective key levels are close to or have already been breached. Offshore moves could drive 10yr ACGBs to 2.35%.”
“We were positioning for AU-US 10yr wideners in our Annual Outlook, but our -45bps entry point has remained elusive. ACGBs should lag offshore driven rallies in rates, but the underperformance is unlikely to be that significant.”
“The Aus 3s10s curve is more likely to flatten on offshore leads. The RBA resistance to cut rates remains high in our view. We also question whether lower rates will help if lending standards are being tightened. A break below 52bps is looking more likely.”
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