Australian 10-year bond yields fell to 2.848 per cent last night – the lowest yields since 1948.
What does it all mean?
- The last time that Australian long-term government bond yields were at current levels was back in 1948. A 12-year government bond traded in Australia and yields held just over 3 per cent. But a Commonwealth long-term bond also traded in London and yields were near 2.6 per cent in mid 1948. Over 1946-1948 Commonwealth long-term yields were trading between 2.25-3.0 per cent in London.
- The bottom line is that Australian government debt is demand, together with securities in the US and Germany, as investors seek “safe-haven” assets. So lower yields represent a tick mark for the Australian economy.
- Lower government bond yields will reduce borrowing costs for the Australian government and therefore assist in reducing the budget deficit and public debt. Lower government bond yields also serve to keep borrowing costs down for companies and home buyers. If market yields remain low then Aussie borrowers will benefit. The only worry for borrowers is to decide how much debt to keep at variable rates and how much of loan obligations should be locked in at fixed rates.
- The jitters about Europe may be weighing on equities markets, but Australian borrowers are emerging as winners – helping people to keep focussing on opportunities rather than risks.
4 June 2012