Global stock and bond bulls see Reserve Bank of Australia (Central Bank)dove surpriseWe hope that the impact it has had on the market will be long-lasting. It provides grounds for arguing that the big global interest rate hikes are nearing the end, not the beginning.
Yields on rate-sensitive Australian three-year bonds fell the most since 2008 after the central bank announced a smaller-than-expected 0.25 percentage point hike on Wednesday. The impact spread around the world, with US bonds rising, New Zealand government bond yields falling, and Japanese stocks rising.
The RBA’s unexpected move will be interpreted as a sign that the wave of aggressive rate hikes that have weighed on global bond and equity markets this year is nearing an end. Australia has been a leading indicator for the bond market since at least late 2021. The central bank abandoned yield curve control in November of the same year, sending Australian government bond yields soaring.
“I think we’re at a point where the market is pricing in a cap on interest rates,” said Ned Bell, chief investment officer at Bell Asset Management. “It’s a good sign that we’re going to see a similar move by the central bank, and the pace of rate hikes will slow.”
Two-year U.S. Treasury yields dropped about 8 basis points (bp, 1 bp = 0.01%) to 4.03% on Thursday. It was down 17 basis points on the 3rd. Australian 3-year bond yields fell 32 basis points. The S&P ASX200, a representative index of the Australian stock market, has recorded a significant rise since June 2020.
Original title:Australia Supercharges Market Debate That Peak Rates Are Near(excerpt)