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”
More:
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)
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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.
