Bank of America bets on ‘outsized price movements' in Australia's bond market as investors rotate away from the U.S.
As international investors pivot out of the U.S., another part of the world — and its bond market in particular — is gaining attention, according to Bank of America. The analysts pointed to Australia's bond market as potential beneficiary of the dollar losing its safe haven status. Dedollarization Market volatility under U.S. President Donald Trump's presidency has led some investors to diversify to other markets in 2025. Trump's controversial trade policies sparked a "Sell America" trade earlier this year that raised questions about dedollarization as investors cashed out of U.S. Treasurys, Wall Street stocks and the greenback. The U.S. dollar index , which measures the greenback against a basket of major rivals, is down 9% so far this year. .DXY YTD mountain Price of the U.S. dollar index so far this year. In a note on Wednesday, FX strategists at Bank of America forecast significant price moves ahead for Australian sovereign debt, in part because of the dedollarization trend. They suggested the country's fixed income market could see an inflow of capital as U.S.-focused positions were reassessed — but noted that even a modest rotation out of U.S. dollar-denominated assets had the potential to "overwhelm AUD fixed-income and [lead to] outsized price movements." In its most recent Global Fund Managers Survey, published last week, Bank of America found that fund managers were the most underweight on the U.S. dollar then they have ever been in 20 years. One in five of the 222 fund managers — who collectively manage assets worth $587 billion — polled this month said they saw a short U.S. dollar position as the most crowded trade. "High-frequency data" suggests foreign and official demand for the Australian dollar may be "intensifying," BofA's Oliver Levingston, Adarsh Sinha and Janice Xue said in a Wednesday note. 'Major impact' on pricing "For small fixed-income markets like Australia's, a modest rotation out of USD assets could have a major impact on market pricing," they added. "Dedollarization was a major theme on our trip to the United States and Canada, and we continue to highlight the significant impact small shifts in global fund managers' asset allocations could have on the demand profile for AUD fixed income." So far this year, the yield on Australia's benchmark 10-year government bond has cooled slightly to around 4.24%. On Friday, the yield gained 1 basis point. Bond prices and yields move in opposite directions, and 1 basis equals 0.01%. Comparatively, the yield on the benchmark U.S. 10-year Treasury was last trading at around 4.43% — giving the two assets a spread of 19 basis points. AU10Y US10Y YTD line The chart shows the yield on the Australian 10 year government bond versus the U.S. 10 year Treasury. Bank of America's strategists said they expected that spread to widen further in the coming years, as demand for Australian sovereign debt surged. Noting that the bonds were "highly sensitive to shifts in global reserve manager demand," they forecast that demand would exceed supply by 2027/28. "We recommend going long spreads and see AU 10y bonds trading 75bps rich vs USTs … by end-'26," they wrote. A wider spread of 75 basis points would imply stronger Australian bond prices relative to U.S. Treasurys. 'Peripheral dollar bloc assets' Part of the appeal, according to Levingston, Sinha and Xue, is rising demand for what they referred to as "peripheral dollar bloc assets." Over the past decade, the share of official reserves — that is, assets held by central banks — denominated in Australian dollars has doubled, they said. Another 1-percentage-point gain in global reserve demand would translate to 185% of net supply of Australian sovereign bonds in the current fiscal year, they added. Conversely, demand for U.S. Treasurys — historically seen as a safe investment in times of macroeconomic or geopolitical turmoil — has been shaky this year. In the aftermath of Trump's so-called "liberation day" tariffs announcement, U.S. Treasurys sold off , pushing yields — representative of government borrowing costs — higher, and prices of the bonds lower. "Coupled with tailwinds from Australian superannuation [pension] funds' rapidly growing footprint in AUD fixed-income markets and potential bank deregulation, the demand profile for AUD fixed income looks robust," BofA's Levingston, Sinha and Xue said in their note. "In our view, AUD bonds' high sensitivity to small shifts in global reserve demand for AUD assets has not been priced. On a comparative international basis, AUD term premium looks excessively high."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Los Angeles Times
40 minutes ago
- Los Angeles Times
Oil rises as U.S. stock futures, Asian shares slip after American strike on Iran
NEW YORK — The price of oil rose and U.S. stock futures fell as global markets reacted to the American bombing of nuclear targets in Iran. The price of Brent crude oil, the international standard, rose 2.6% to $79 a barrel. U.S. crude rose 2.6% to $75.76 a barrel. U.S. forces attacked three Iranian nuclear sites early Sunday, further increasing the stakes in the war between Israel and Iran. Futures for the S&P 500 and the Dow Jones industrial average slipped 0.4%, while Nasdaq futures fell 0.5%. Treasury yields were little changed. The modest moves indicate markets are taking the latest development in stride. That was evident in early trading in Asia. Tokyo's Nikkei 225 index fell 0.6%. Other major regional markets also logged moderate declines. The conflict, which began with an Israeli attack against Iran on June 13, has sent oil prices yo-yo-ing, which has in turn caused seesaw moves for the U.S. stock market because of rising and ebbing fears that the war could disrupt the global flow of crude. Iran is a major producer of oil and sits on the narrow Strait of Hormuz, through which much of the world's crude passes. 'The situation remains highly fluid, and much hinges on whether Tehran opts for a restrained reaction or a more aggressive course of action,' Kristian Kerr, head of macro strategy at LPL Financial in Charlotte, N.C., said in a commentary. An Iran retaliation that includes closing off the waterway would be technically difficult to pull off, but traders are afraid Iran could severely disrupt transit through it, sending insurance rates soaring and making shippers nervous to move without U.S. Navy escorts. Some analysts think Iran is unlikely to close down the waterway because the country uses it to transport its own crude, mostly to China, and oil is a major revenue source for the government. 'It's a scorched-earth possibility, a Sherman-burning-Atlanta move,' said Tom Kloza, chief market analyst at Turner Mason & Co. 'It's not probable.' Kloza thinks oil futures will ease back down after initial fears blow over. Ed Yardeni, a longtime analyst, agreed, writing in a report that Tehran leaders would probably hold back. 'They aren't crazy,' he wrote in a note to investors Sunday. 'The price of oil should fall and stock markets around the world should climb higher.' Other experts aren't so sure. Andy Lipow, a Houston analyst who has covered oil markets for 45 years, said that countries are not always rational actors and that he wouldn't be surprised if Tehran lashed out for political or emotional reasons. 'If the Strait of Hormuz was completely shut down, oil prices would rise to $120 to $130 a barrel,' said Lipow, predicting that that would translate to about $4.50 a gallon at the pump in the U.S. and hurt consumers in other ways. 'It would mean higher prices for all those goods transported by truck, and it would be more difficult for the Fed to lower interest rates,' he said. In trading early Monday in Asia, Taiwan's Taiex fell 1.5% while the Kospi in South Korea lost 1%. Both Taiwan and South Korea rely heavily on oil imported through the Strait of Hormuz. Australia's S&P/ASX fell 0.7%, and the benchmark in New Zealand lost 0.5%.
Yahoo
an hour ago
- Yahoo
It sounds sick, but Iran hostilities may be good for stocks
It sounds sick, but Iran hostilities may be good for stocks originally appeared on TheStreet. So, President Trump ordered B-2 bombers to drop bunker-busting bombs on three Iranian nuclear facilities late Saturday. He pronounced the result "a spectacular success," with Iran's nuclear enrichment facilities "completely and totally obliterated." There will be lots of media coverage Sunday and beyond on whether the operation worked and whether the United States will be dragged into a third war in the Middle East since 1991. 💵💰💰💵 A question for investors, however, is this: How will stocks react?There are some unknowns. There's been no verification that Iran's nuclear enrichment facilities are, in fact, totally obliterated. It's not clear if Iran will try to cut a deal to stop the Israeli and U.S. bombing or opt somehow to play a long game of defending itself with missile shots at Israel and U.S. military bases in the Middle East. Nonetheless, there's a good chance Wall Street will seize on the attacks as a prime stock-buying opportunity. That's what happened in 2003's Second Gulf War when U.S.-led forces invaded Iraq and toppled the dictatorial regime of Saddam started to tumble in late January 2003 as another war against Iraq became inevitable. The Standard & Poor's 500 Index was down as much as 9% for the year on March 11. But then investors started to believe the invasion would go well, and the S&P 500 started to recover. Indeed, when Baghdad fell on April 9, 2003, the index had recovered all the early losses and was up 8.2% from the March low. And stocks never looked back. The S&P 500 finished up 26.4% in 2023. The gain from the March 2003 low to year-end: 38%. One will be able to see how investors and markets are looking at the conflict starting at 6 p.m. ET Sunday. That's when futures trading in the S&P 500, the Dow Jones industrials and the Nasdaq-100 starts. Gains like 2003 might not happen. Iran was lobbing missiles at the Israeli cities of Tel Aviv and Haifa into Sunday. And, so far, there's no hint that Iran's leadership wants a cease fire. A prolonged fight might be bad for stocks. Iran has missiles and drones to deploy. It could block off Strait of Hormuz, through which 25% of the world's crude oil is shipped. Blocking the strait would send global oil prices sharply higher and cause havoc for the global economy. in fact, oil prices already have reacted. As tensions have grown between Israel and Iran (and now the United States), crude oil has climbed 29.3% to $73.84 per 42-gallon barrel from a May 5 closing low. U.S. gasoline prices have risen, too, about 4% or so, to about $3.20 a gallon, according to companies would profit. In fact, stocks in the S&P 500's Energy Sector are up 9.2% so far in June, the best performance by any of the 11 S&P 500 sectors. Oil-and-gas producer APA Corp. () , the sector leader is up 15.8% over the last month, according to data. Exxon Mobil () has jumped 9.3%; Chevron () is has risen almost 9%. More Experts Analyst makes bold call on stocks, bonds, and gold TheStreet Stocks & Markets Podcast #8: Common Sense Investing With David Miller Veteran fund manager sends dire message on stocks Theoretically, the first-quarter earnings seasons is done, but some of the late stragglers due this week are important. These include: FedEx () , after Tuesday's close. FedEx shares have struggled, but there is hope. The delivery giant is doing business again with () , and its business overall is growing again. But shares are off nearly 20% this year because of tariff worries. Earnings are estimated to rise 8.9% from a year ago to $5.89 a share. Revenue will be off slightly at $21.8 billion. Cruise-line giant Carnival Corp. () , before Tuesday's open. Between August 2024 and Jan. 30, the shares doubled to $28.49 because bookings were beyond terrific. Then, the shares fell 49%, thanks to the Trump tariff plan and the mini-stock panic. Carnival is back to $23.77. The quarterly revenue estimate of $6.2 billion is up 7.3% from a year ago. Earnings of 24 cents a share would be up 118%. Chip maker Micron Technology () shares are up 47% this year, and Wall Street likes — no, loves — the stock, whose chips have carved out a lucrative spot in artificial intelligence. In fact, the shares are already ahead of one analyst's one-year price target. The revenue estimate is $8.8 billion, up nearly 30% from a year ago. Earnings of $1.59 a share would be up 156%. Nike () is having a challenging year. The shares are down 21% this year, third-worst among the Dow Jones industrial stocks. True, it's selling athletic wear and shoes again on but it is extremely vulnerable to the Trump tariff hikes. Barrons says Nike's factories in Vietnam, Indonesia and China manufacture 50%, 27% and 18% of all its footwear. (Yes, that adds up to 95% of production.) The Nike revenue estimate: $10.7 billion, down 15.1% from a year ago. Earnings of 12 cents would be down 88%.It sounds sick, but Iran hostilities may be good for stocks first appeared on TheStreet on Jun 22, 2025 This story was originally reported by TheStreet on Jun 22, 2025, where it first appeared. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
an hour ago
- Yahoo
U.S. Sits on Billions of Untapped Oil Barrels
The United States is the largest oil and gas producer in the world. It is also experiencing a slowdown in its oil production for a number of reasons, including natural depletion. The U.S. Geological Survey, however, has just published a study stating that there are almost 30 billion new barrels of untapped oil—under federal lands, no less. Oil and gas drilling was a contentious topic during the Biden administration. The administration decidedly did not like it and put a serious effort into curbing this drilling as much as the law allowed. As soon as Donald Trump became president, the tables turned and drilling on federal lands became very much a desirable direction for federal energy policy to move in, with the President prioritizing affordable energy and higher exports. Now, the U.S. Geological Survey has thrown its weight behind the American energy dominance idea, reporting estimated undiscovered oil reserves of 29.4 billion barrels across the country, with the leader being Alaska with 14.46 billion barrels of untapped oil under federal lands. New Mexico is next, with 8.925 billion barrels of undiscovered oil, followed by Nevada, with 1.4 billion barrels. Untapped gas reserves on federal land were estimated at over 391.55 trillion cu ft. Now, the only question is when these hitherto untapped resources will be number of drilling rigs in the U.S. oil patch has been on a steady decline recently, reflecting an extended weakness in international prices. This has now changed, of course, after Israel attacked Iran on June 13, but the industry is in no rush to reverse course for the time being. The industry is playing it safe, not least because cheap drilling sites are running out—or maybe not, if the USGS assessment of untapped resources is correct. For years now, the biggest production growth driver of U.S. oil has been the Permian Basin, spanning Texas and New Mexico. The Permian has single-handedly offset declines in a number of other shale plays and largely uneventful day-to-day business in conventional fields. But the Permian is not inexhaustible, and more importantly, it's not cheap to drill everywhere there. So, costs are rising in the Permian as some parts of the play hit their geological limits while others, yet to be drilled, are not expected to be as prolific as that top-tier acreage that the industry is running out of currently. This has sparked some concern among commentators, although some have argued that there may yet be another boom left in the most prolific shale play in the country. Yet with the USGS's new assessment of undiscovered reserves, such a boom becomes less important for the current administration's dominance plans. If there are 14.46 billion untapped barrels of crude under Alaska alone, shortage of new oil will not become a problem for the world's top producer anytime soon. 'American Energy Dominance is more important than ever, and this report underscores the critical role science plays in informing our energy future,' Secretary of the Interior Doug Burgum said in comments on the USGS study. 'Thanks to the USGS's rigorous and independent assessment, we're better equipped to manage America's vast public lands responsibly while supporting energy security and economic opportunity.' Crude oil is currently trading at over $75 per barrel. In fact, WTI is climbing closer to $76 per barrel amid the spike in violence in the Middle East. How long this will hold is anyone's guess, but the fact is that prices are set for their third consecutive weekly rise. This is a short-term development, of course, while oil companies are more interested in the long-term outlook for their business. This is also uncertain, alas, because federal policy could flip in three years just like it flipped when Trump took the helm. Indeed, environmentalists are massively unhappy about any oil and gas drilling on any federal lands. 'America's public lands are intended to be held in trust for all people in this country, and their resources managed carefully and in perpetuity,' a Natural Resources Defense Council blog post from February said, as quoted by Bloomberg. 'As the Trump administration shifts to a pro-industry footing to help rich dirty energy companies get even richer, we're seeing this trust responsibility shirked in shocking and truly damaging ways,' the author, senior program advocate Josh Axelrod, wrote. The Center for American Progress claimed earlier this year that more drilling on federal lands would not bring down energy costs for Americans, in part because companies were uninterested in the acreage that the federal government had to offer, and also, they worked like a cartel to set prices. Such attacks on oil and gas will no doubt intensify—even as banks, the actual people with the money, walk back their climate commitments and boost investment in oil and gas. With or without these attacks, however, tapping those billions of barrels would depend on one thing only: whether it makes economic sense. With new discoveries few and far between globally, they might start making such sense before very long. By Irina Slav for More Top Reads From this article on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
