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It’s all about the yield curve

Published March 26, 2019

By Nicholas Cork

The USD eased a touch overnight as US 10-year yields fell to 2.4 %, a total fall of 0.25% in the last few sessions, to take the US 10 year rate to the lowest level since Dec 2017.  Analysts are explaining the move as short covering and stop loss driven trading, as talks of a potential US recession are being hosed down as ex-Fed Chair Yellen commented the yield curve may just signal a need to cut rates, not a recession. Current Fed speakers then joined the choir with Chicago Fed President Charles Evans saying the US central bank may have to put increases on hold or even ease monetary policy if economic forecasts for 2019 disappoint, while Philadelphia Fed President Patrick Harker said he sees one hike “at most” this year. These views offset the recent Fed guidance of no rate hikes in 2019 and possibly one in 2020 – lookout for new guidance very soon.

In the UK, Mrs. May admitted on Monday she did not have enough support to pass her EU withdrawal deal as some in her party called on her to quit parliament. The saga continues…  In an aside, a 31-year-old who egged Corbyn whilst yelling ‘respect the vote’ whilst Corbyn visited a Muslim community just received 28 days jail!  In Germany, finally, some decent data helped sentiment as the March business climate index unpredictably rose, calming nerves after recent poor German manufacturing data, and thus dissipates imminent recession fears.

The AUD received a boost back to 71 cents where it opens this morning, roughly in line with a reduction in the yield advantage the US holds over AU back below 0.8% in the 2-year term. Comments yesterday from the Chinese Premier Li at the China Development Forum also assisted as China reiterates that they have the ability to resist downward pressure on the economy to provide additional support to the CNY, instead of expanding their deficit and relaxing the monetary policy, China will roll out measures focusing on the market. This is the type of development that the market has been waiting to see but we now wait for the delivery…

AUD to remain range trading 0.7000/0.7200.


US 2- and 10-year yields – Reuters




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