Australian Bonds Rally on Global Growth Concerns
The Australian bonds rallied on Wednesday as Western investors pour into safe-haven assets amid deepening global growth fears. The benchmark 10-year bonds yield, which is inversely proportional to bond price fell 0.81 pct to 2.44 pct and 3-year bonds yield dipped 1.96 pct to 1.86 pct at 6:00 GMT.
The European bourses started the rout, tumbling to 6-week lows, after weak regional data underlined the ongoing economic malaise across the continent. Similarly, the German factory orders slumped 1.2 pct in February, as opposed to the predicted 0.3 pct increase, while the March composite Eurozone PMI was revised down 0.6 points to 53.1 as the services reading was cut 0.9 points.
Yesterday, the Reserve Bank of Australia in the monthly monetary policy maintained its key interest rate at a record low of 2.00 pct and Governor Stevens reiterated in his statement that the monetary policy needs to be accommodative in nature and regulations are in place to moderate the risks in the housing market. He further added that low inflation may provide scope for easier policy.
“Global rates markets are rallying, with yields lower across the board, as investors snap up less risky assets. Australian markets largely kept pace with moves and expect a further fall in yields today ", said ANZ economists.
We foresee that the central bank could lower its official cash rate further if core inflation continues to trend downward, as the RBA indicated. If unemployment and GDP growth fail to improve over the coming months, such a move will occur sooner rather than later, pushing bonds prices up.
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