US government bond yields experienced a sharp decline overnight, spurred by escalating tensions between the United States and China, coupled with anxieties within credit markets. The benchmark US 10-year Treasury yield decreased by 7 basis points, settling at 3.97 per cent, a level unseen since April 7. Simultaneously, the US 2-year yield also fell, dropping 9 basis points to 3.42 per cent, marking its lowest point in three years.
Market participants have significantly increased their expectations for more aggressive easing measures by the Federal Reserve. Current pricing reflects anticipation of more than two full rate cuts by the end of the year. Some investors are even positioning for a potentially large 50 basis point reduction at either the October or December Federal Reserve meetings.
In Australia, the three-year government bond yield fell to 3.36 per cent, with the decline largely attributed to a weaker-than-anticipated domestic jobs report. The 10-year yield also decreased, settling at 4.14 per cent. Markets have fully priced in an interest rate cut by the Reserve Bank of Australia in December, reflecting concerns about the domestic economic outlook.
The Australian dollar stabilised at US64.86¢. It has gained 0.2 per cent since Monday.
