Bond market moves lower

Recently we have seen some movement in the bond market, with yields dropping due to heavy buying from US interests. Yields on ten year swaps have dropped from 6.08 per cent four weeks ago, to 5.71 per cent currently.

This has been due to several factors. Firstly, a strong rally in commodity prices – driven in part by the rise in oil prices – has had positive effect on commodity currencies, such as the Australian dollar. This in turn gives central banks – such as the Reserve Bank – more opportunity to cut rates should the need arise. Secondly, as critical price levels were broken, a buying free-for-all broke out, pushing yields further downwards. Finally, as the difference between US bonds and Australian bonds became less significant, Australian bonds became more attractive to US buyers.

So, expect to see fixed rates, which have slowly been moving up over the last month or so, start to become cheaper, as these market movements start to make an impact on retail bank pricing.

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