SYDNEY, Mar 14: Australian bond yields shot up to their highest in nearly a year on Thursday as startlingly strong jobs data led investors to see no chance of further rate cuts, giving more impetus to a market already pricing in a brighter global outlook.
Yields on the three-year government cash bond surged 19 basis points to reach 3.16 percent, the highest since April and the biggest daily increase in seven months.
Debt futures, which are far more liquid than the country’s A$267 billion ($275 billion) government bonds on issue, crumbled to 10-month lows.
The three-year bond contract sank 0.19 points to 96.820, while the 10-year contract slipped 0.10 points to 96.345, as the yield curve flattened.
‘Bonds were trashed today on the back of strong jobs data,’ said Matthew Johnson, a strategist at UBS.
Thursday’s data showed that employment soared by 71,500 in February, far above any forecast and the biggest increase in more than a decade.
Three-year cash bond yields now stand above the Reserve Bank of Australia’s 3 percent cash rate for the first time since July 2011, a sign that markets are normalising.
‘Bonds above cash is a reasonable place for them to be at the moment and it means that people are more optimistic about the outlook,’ said Johnson.
Global markets have been awaiting signs of a so-called ‘Great Rotation’ out of low yielding but safe government bonds and into riskier assets, which could signal an end to the virtually unbroken 20-year bull run in bonds.
But some investors remain cautious about prospects for global economic recovery this year.
In contrast with Australia, short-dated bond yields in Germany and Canada are still trading below their respective central bank benchmarks, suggesting markets are less confident about the shape of those economies.
BARNSTORMING READING
On Thursday, U.S. Treasuries fell slightly in Asia after better-than-expected U.S. Retail sales data boosted confidence in the U.S. Economy, although strong results from an auction of 10-year notes capped losses.
The barnstorming strong jobs reading in Australia prompted swap markets to slash the amount of easing implied for the year ahead to just 5 basis points. A couple of weeks ago, they had as much as 45 basis points pencilled in.
Interbank futures <0#YIB:> are giving a mere 50-50 chance of an easing late in the year.
Having already cut rates by 175 basis points since late 2011, the Reserve Bank of Australia appeared to have shifted to a wait-and-see stance, although still with an easing bias.
($1 = 0.9716 Australian dollars)
(AGENCIES)
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