Bloomberg is carrying a story over the weekend quoting Philip Moffitt, head of Asia-Pacific fixed-income at Goldman Sachs Asset Management in Sydney. Note, the interview is from December 18 but as I say the story is up on Bloomberg this weekend.
In it Moffitt says the gap in yield between Australian and US 10-year bonds is likely to narrow significantly in 2015, if not close completely:
- “The Fed will push rates up next year and the RBA in Australia will most likely reduce them”
- “There’s no reason why the range in bond spreads that we’ve been used to historically has to hold if the domestic fundamentals are different from the U.S”
Moffitt says the RBA is set to cut the cash rate target by half a percent in H1 of 2015 unless the Australian dollar weakens:
- “If we come back from Christmas holidays and in February the currency’s at 77 cents, then a cut’s most likely off the table for six months”
- He think Japanese demand for Australian bonds will still lend support to the Australian dollar
This is a slightly different view from Moffitt; while Goldman have given their view of likely Australian rate cuts for some time (for example, from December 3: Goldman Sachs now expecting an RBA interest rate cut of 25bp in March and again in August 2015) it appears their expectations of a cut in August have shifted forward a little 9unless the AUD weakens)
I don’t know why the story is out over the weekend given the interview was conducted on December 18. Perhaps it was out earlier and I missed it.
A narrowing of the gap in US/Australian yields should be a negative for the AUD, Australian bonds would not be as attractive as they currently are (Australian government bonds are a AAA rated sovereign debt that pay relatively high yields). But note, this isn’t new news from Moffitt, perhaps just a slight shifting forward of expectations of a cut.