Originally published by Rivkin Securities
US bond yields continue to climb with the 10-year yield now at 3.10%, a new 7-year high. The rising yields have led many to believe that the secular bond bull market that started 30 years ago is now over. The unwinding of stimulus and the return of inflation are expected to continue driving yields higher. With inflation in the US rising closer to the Federal Reserve’s 2% target, bond investors are demanding higher yields to compensate them for the inflation risk they are taking. The Federal Reserve is expected to raise the overnight borrowing rate by 25 basis points at its next meeting on June 12.
All of this contrasts with Australia, which is keeping rates on hold at 1.5% for the foreseeable future as a result of weak wages growth and spare capacity in the economy. The Reserve Bank is also concerned about relatively high levels of household debt which could be especially problematic in a rising rate environment.
The Dow Jones made a small 0.25% gain in overnight trading while the S&P 500 was up 0.4%. The stock market is holding up well considering the rise in bond yields. A spike in bond yields earlier in the year may have been one of the catalysts for the significant stock sell-off that we had in February.
Today Australia releases its employment data for the month of April. Expectations are for a 19,800 person increase in employment although the unemployment rate is expected to remain steady at 5.5%. Strong employment data has been one of the bright spots in the Australian economy in recent months.
Data Releases:
- Australia Employment Data 11:30am AEST