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AUD bearish: Aussie-US bond yield spreads turn negative for first since April

The Australian bond yields yield less than their US counterparts, possibly due to expectations for additional Reserve Bank of Australia (RBA) stimulus. 

The spread between the Aussie and US 10-year government bond yield has turned negative in an AUD-bearish manner this week. The spread was last hovering below zero in the first half of March. 

The Aussie-US two-year yield spread, which is more sensitive to short-term inflation and interest rate expectations, has also dropped into the negative territory. 

The RBA is expected to cut borrowing costs to a new record low of 0.10% next month from the current 0.25% and ramp up purchases of bonds with a maturity of five to 10 years. 

The minutes of the central bank’s October meeting released early Tuesday showed the board considered the case for additional monetary easing to support jobs and the overall economy. 

Members discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative, and buying government bonds further along the yield curve. 

Aussie-US 10-year yields spread

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