Wednesday, 14 April 2010

Australia, UK and US government 10 year bond yields – April 2010 update

I continue to monitor the 10 year government bond yields of three countries (Australia, United Kingdom and the United States) to try and understand when interest rates on savings and mortgages may start to rise with my datasets shown in today’s chart.

Since March the yields in Australia have risen from 5.76% to 5.85%. This is not surprising given that the Reserve Bank of Australia (RBA) continues to raise interest rates having increased by 0.25% this month. The US yields are flat going from 3.84% to 3.85%. It really does help being the worlds reserve currency.

The UK yields are back rising again, increasing from 3.95% in March to 4.05% today. Is the international market starting to get a little nervous about UK bonds falling in value (remember generally as yields rise bond prices fall and vice versa) through currency devaluation and by the UK pseudo defaulting by attempting the old inflation trick? Pimco certainly is.  Once the bond markets have finished with Greece could the UK be the next stop?  I don't know.

Remember also that the UK Debt Management Office (DMO) lost a key customer when the Bank of England stopped printing money (sorry, Quantitative Easing) to buy gilts once they’d reached £198.3 billion. Their last purchase looks to have been on 26 January 2010 with January 2010 money creation of £10.2 billion. Since the end of January 10 year gilt yields are up 3.6% going from 3.91% to today’s 4.05%. Coincidence or just noise at this early stage?

As always DYOR.

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