Latest news with #bondYields
ABC News
2 days ago
- Business
- ABC News
'Panic' in some quarters as US dollar dive puts pressure on Australia's $4 trillion superannuation pool
The Reserve Bank cut interest rates earlier this month in part because it was worried about the risk of a "severe downside scenario" for global trade. Economists say that risk just increased with a recent steep fall in the value of the US dollar — the fallout of which all Australians could feel. The US dollar, the world's reserve currency, has been hovering around a 3-year low and its steep decline has veteran economist Saul Eslake worried. "The reason for the decline in the US dollar is that financial markets are becoming increasingly apprehensive about a number of aspects of the US economy as a result of things that the Trump regime is doing," he told the ABC. They include sweeping tariffs imposed on many of its trading partners, and the potential passing of the so-called Big Beautiful Bill, which could see US debt rise significantly over the next decade. The apprehension is also showing up in higher long-term US interest rates, including the 30-year government bond rate, which is now roughly 5 per cent. Bond yields or interest rates rise when investors demand a higher return for debt that has become riskier, or more challenging for the borrower to repay. It has led to the end, for now, of a close correlation between the US dollar and US long-term interest rates. The two are now diverging. "Apprehension is probably putting it at its mildest," Mr Eslake said. "In some quarters, there is, if not panic, then certainly alarm [about rising bond yields]." The distress relates to the connection between elevated long-term bond interest rates and the rising cost of millions of American mortgages. The risk, Mr Eslake says, is that enormous numbers of Americans could begin to struggle to service their mortgage repayments. "With the 30-year bond yield in the US now higher than at any time since before the global financial crisis, that means that even though inflation is coming down, in the US, at least, until Trump's tariffs come into effect, bond yields and mortgage rates are going up." This, he says, could seriously harm the world's biggest economy. Australian mortgage borrowers on fixed-interest loans are, Mr Eslake says, also in the firing line. "Because although our mortgages tend to price off the Reserve Bank's official cash rate, fixed rates for mortgages and for business loans, the longer out you go, the more influenced they are by US government bond yields." The falling US dollar, analysts say, is also pushing the Australian dollar higher. While that's good news for Australian travellers, FNArena's Danielle Ecuyer says it is a risk for anyone holding US investments. And that includes Australians with superannuation. "We know that a lot of Australian investors have been piling into US stocks and the one thing that I think probably a lot of them aren't even taking into account is even though [US stocks have performed well], over the same period the Australian dollar has actually gone up 10 per cent," she said. "So, in Australian dollar terms, you can say you're basically losing that 10 per cent on your performance. Mr Eslake sees financial dangers for the US economy rising. That is because the cost of US government debt, he says, is higher than America's economic growth rate which, he points out, can make servicing government debt incredibly challenging. "And history tells you in those circumstances that, especially if governments continue to run big budget deficits, as the US is planning to do, that can actually lead to exponential growth in government public debt," he says. "At its most extreme example, that's what happened to Greece 13 years ago. "Now, the US is nowhere near where Greece is, but it's heading in that direction." Official inflation data will be released later on Wednesday, which, if low enough, could open the door to some additional mortgage relief for Australian mortgage borrowers on variable interest rates.
Zawya
3 days ago
- Business
- Zawya
Euro zone bond yields edge down on French inflation data, tariff concerns
Euro area bond yields dropped on Tuesday after French inflation data came in weaker than expected, while concerns about the potential adverse economic impact of U.S. tariffs persisted. Borrowing costs edged up on Monday as the U.S. backed away from its threat to slap 50% tariffs on European imports, before falling later in the session in the wake of U.S. Treasury market worries about the effects of erratic U.S. trade policy. French inflation fell to its lowest level since December 2020 in May, driven by a sharper decline in energy prices and a slowdown in service costs. Germany's 10-year government bond yield, the euro area benchmark, dropped 2.5 basis points (bps) to 2.54% after hitting 2.513%, its lowest level since May 8. U.S. stock index futures jumped on Tuesday after tensions between the United States and the European Union cooled, favouring some selloff in safe-haven bonds. On the euro zone front, markets await more inflation data from Germany, Italy and Spain on Friday. The normalisation of interest rates in the euro zone is probably not complete, European Central Bank (ECB) policymaker Francois Villeroy de Galhau said on Tuesday. However Austrian central bank governor Robert Holzmann, seen as a hawk, called for a pause in rate cuts until September. Markets price in a 90% chance of an ECB 25 bps rate cut next week. They also indicated a depo rate at 1.67% in December, which implies an additional easing move and an around 30% chance of a third cut by year-end. The depo rate is currently at 2.25%. Data showed that the euro zone economic sentiment improved in May. The benchmark 10-year U.S. Treasury yield was down 5 bps to 4.46% in London trade. Analysts mentioned a possible regulatory relief which could favour more demand for bonds, driving yields lower, and concerns about rising public deficit. Market participants expect U.S. regulators to revamp the "supplementary leverage ratio", reducing the amount of cash reserves banks must hold and encouraging them to play a larger role in intermediating Treasury markets. A tax and spending bill which would saddle the U.S. with more debt now heads to the Senate, with several senators saying they would seek substantial changes over what is likely to be weeks of debate. Italy's 10-year yield rose 0.5 bps to 3.56%, with the gap between Italian and German yields at 99.50 bps, after reaching 90.90 bps last week, its lowest level since March 2021. (Reporting by Stefano Rebaudo; Editing by Hugh Lawson)
Free Malaysia Today
4 days ago
- Business
- Free Malaysia Today
Euro area bond yields rise after Trump extends deadline on EU tariffs
US President Donald Trump has agreed to extend the deadline until July 9 for talks between Washington and the 27-nation bloc to produce a deal. (AP pic) BRUSSELS : Euro zone government bond yields edged up today as the US backed away from its threat to slap 50% tariffs on European imports, soothing fears of a sharp economic slowdown. US President Donald Trump agreed yesterday to extend the deadline until July 9 for talks between Washington and the 27-nation bloc to produce a deal. Germany's 10-year yield rose 3 basis points (bps) to 2.60%, after dropping 6.5 bps on Friday. Trading volumes today are expected to be thin, given that markets in the US and Britain are closed due to public holidays. Money markets priced in the European Central Bank (ECB) deposit facility rate at 1.70% in December, up from 1.67% late on Friday. It reached 1.55% after the ECB suggested in mid-April it could cut rates in response to a possible tariff-induced economic slowdown. Money markets also indicated more than a 95% chance of an ECB rate cut in June and less than a 20% chance of a second easing move in July. German 2-year government bond yields, more sensitive to ECB policy rates, were up 4 bps at 1.80% after falling 7 bps on Friday. Italy's 10-year yield rose 1 bp to 3.82%, after credit rating agency Moody's on Friday upgraded its outlook on Italy to 'positive'. The spread between Italian and German yields – a market gauge of the risk premium investors demand to hold Italian debt – dropped 2.5 bps to 96.50. It hit 90.90 bps last week, its lowest since February 2021.
Yahoo
5 days ago
- Business
- Yahoo
Vanguard chief economist explains rising deficits & the effects
Rising bond yields (^TYX, ^TNX, ^FVX) are putting fiscal deficits in the spotlight. Vanguard global chief economist and global head of investment strategy Joe Davis joins Market Domination to break down how structural debt could pressure interest rates and the broader economy. To watch more expert insights and analysis on the latest market action, check out more Wealth here. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Bloomberg
6 days ago
- Business
- Bloomberg
Charting the Global Economy: Long-Term Bond Yields Soar Around the World
Around the world, yields on longer-dated sovereign debt have soared as investors question the ability of governments to cover massive budget deficits. In the US, 30-year bond yields this week approached levels last seen in 2007 as President Donald Trump's tax bill is poised to swell the budget deficit. Those in Japan exceeded the highest on record in data since 1999, with auctions in both countries drawing tepid demand. Long-dated bonds in the UK, Germany and Australia also faced selling pressure.
