What happened
The Australian 10-year bond yield rose to levels last seen in 2011. The yield expansion was driven by widespread concerns over large budget deficits in the US and abroad, heavy corporate borrowing for data centre investments, sticky inflation from rising oil prices, and rising Japanese yields unwinding the carry trade. Meanwhile, the Australian dollar rose above US$0.72.
Why it matters here
High long-term government bond yields raise the risk-free rate of return, discounting future earnings for high-growth Australian companies and depressing share values. While fixed income investors gain higher future yields on cash and bonds, existing bond portfolios suffer price drops, and higher borrowing benchmark rates tighten financial conditions across the local economy.
What to watch
Crucial US CPI data releases due on Friday, along with upcoming commentary and economic signals regarding domestic interest rate paths from Reserve Bank of Australia officials.
Source
adviservoice.com.au