Australian markets keenly observe bond movements for signs of a potential turning point. Following a robust US inflation reading, the US 10-year bond rate receded from 5.32% to below 5.1%. Australia’s 10-year bond similarly drifted lower to around 5.25%. This easing in bond selling has spurred bargain hunters to re-evaluate asset classes previously pressured by rising yields. Market adages suggest prices ceasing predictable reactions can signal a turning point, a notion supported by contrarian indicators such as The Economist’s recent “Will bonds blow up?” cover story.
Locally, Australian property investment, development, and management groups Mirvac and Dexus have seen their shares stabilise for three months. Mirvac, trading at a significant discount to net asset value, has initiated a $200 million share buyback. However, the broader outlook for Australian property remains contentious. Douglass Orr of Endeavour Equities suggests local property prices could fall over 20 per cent to align with corrections in Canada and New Zealand. He critiques Australian policymakers for cutting rates too soon and maintaining high government spending, arguing this exacerbated inflationary pressures.
This contrasts with the Reserve Bank of Australia’s post-pandemic strategy, defended by Governor Michele Bullock, citing lower unemployment compared to other nations, despite Australian interest rates now exceeding those of the US, Canada, and New Zealand. While current bond market action might imply a shift prioritizing slowing growth over inflation, experts caution that perceived turning points could be premature. Macro strategist James Aitken notes US bond yields might still rise given nominal growth and highlights a structural change in the bond market’s buyer base. Consequently, despite signals hinting peaked interest rate pain, these are unprecedented times; current dynamics might merely be a pause in a profound structural market shift.
