Daily Commentary BY THE CURVE TEAM –

Interest Rates Rise as Trends Break Down

10th of January, 2018

While it was more of the same for equity markets overnight as the rally marches on, the big news was in the bond market. The Bank of Japan made a surprise announcement, which saw large moves in bonds in most major jurisdictions.

The Bank of Japan took the market by surprise, announcing that it would be trimming purchases of bonds in the 10 to 25 year part of the curve. The reduction in purchases of ¥10 billion saw long bond yields jump, leaving yield curves higher.

The US 10 year yield is up to 2.55% with the break of the three decade downtrend looking increasingly likely to stick this time. Long bonds from Germany to Australia were also higher as a result.

Aside from the Yen, which obviously caught a bid on the Bank of Japan news, the USD continued to firm against most major currencies including the AUD. The AUD has now failed at overhead resistance and broken down through a trend line so could be set for a near term pullback.

It comes on the back of some mixed data yesterday. Building approvals surged November on the back of jump in apartment approvals in Victoria. Meanwhile job ads according to the ANZ report fell sharply in December.

David Flanagan

Director - Interest Rate Markets