Investing

Bond Market: The month that was April 2019

  • 02.May.2019
  • Ian Martin,  XTB

April 2019: Australian bonds continue to perform after weak inflation data

Australia has continued its own narrative for bond bulls (those expecting lower yields and higher prices). QoQ Inflation printed at 0.0% cementing bond bull’s control on the market. Gains in prices (lower yields) continued for another month as bond yields touched all-time lows in Australia.

Review of the US Market

The US 10-year bond ended the month at 2.50%, up from the March month end of 2.41%. This resulted in lower prices with the market giving up some recent gains in price.

There was a smaller movement in 2-year US government bonds which also increased in yield by 1bps to 2.27%. This reflects a more realistic view that the Fed is on hold for the short term.

The US curve is no longer regarded as being inverted, so commentary around the inversion being a predictor of a recession has subsided.

Review of the Australian Market

The 10-year Australian bond finished 1bp higher in yield at 1.79%

The 3-year government bond’s yield fell (prices higher) by 11bps to 1.28%.

These new lows reflect that the market expects more than one 25bp move by the RBA. The market is now pricing the RBA cash rate at 1.02% in Dec 2019 and 0.95% in Jun 2020.

What about corporate bonds and BBSW?

Corporate bonds also made further gains from tightening credit spreads, this is the premium required to hold a corporate bond instead of a government bond. Therefore, corporate credit indices outperformed government bond indices with similar maturities. This pricing behaviour is not surprising, as the lower interest rates are driven by inflation. As a result, expectations and therefore investors, move to corporate bonds in search of extra yield.

3-month BBSW continued lower, moving from 1.87% to 1.56%. Given that wholesale borrowing rates are cheaper, we would expect to see bank deposit rates come under a pressure.

Index Performance

Source Bloomberg and Australian Corporate Bond Company

 

The Bloomberg AusBond Composite Index for all maturities (the common benchmark) produced a positive return of 0.28% for the month reflecting mostly lower yields (higher prices).

 

Disclaimer:
The information in this article is general in nature. It should not be the sole source of information. It does not take into account the investment objectives or circumstances of any particular investor. You should consider, with or without advice from a professional adviser, whether an investment is appropriate to your circumstances. Australian Corporate Bond Company Limited is the Securities Manager of XTBs and will earn fees in connection with an investment in XTBs.

Events

  • 28Oct 2020

    YTMAZJ: AURIZON 5.75% 28 OCT 2020

    This is the coupon date

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