Thursday 13 May 2010

Australia, UK, US and the PIGS (Portugal, Italy, Greece and Spain) government 10 year bond yields – May 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. In addition with all the excitement that is occurring with the PIGS I have decided to also dedicate a monthly chart to ‘Club Med’ (Portugal, Italy, Greece and Spain) also.

Since April the yields in Australia have fallen from 5.72% to 5.48%. This fall is a little surprising given that the Reserve Bank of Australia (RBA) raised interest rates by a further 0.25% this month. The markets must see Australia as less risky than it did last month or does it just see Australia as less risky than the other developed countries of the world?. The US yields have also fallen going from 3.66% to 3.57%.

The UK yields have even fallen from 3.85% in April to 3.57% today. So if anything we could be about to see mortgage rates become even cheaper. The market must be getting excited about the austerity plans that are coming our way which are supported by Mervyn King. Although the £6 billion reduction in spending talked about this year by the Con-Lib coalition is but a drop in the ocean from the axe that must be fast heading towards the public sector if we are to keep the market satisfied in the longer term.

The PIGS have been an exciting place to watch of late although it looks like the European Union and the IMF have kicked the can down the road and put a bond crisis off for another day when they rustled up 750 billion Euros of loans and loan guarantees over last weekend.  This all resulted in Portugal 10 year bond yields dropping from 5.36% to 4.68%, Italy from 4.04% to 3.98%, Greece has been ‘saved’ going from 9.35% to 7.74% and finally Spain from 4.05% to 3.96%. I must note though that it is reported that this £750 billion Euros of loans won’t fund the Euro area for quite another year so I guess this monthly post could get very boring until just into the new year when we might see all the excitement kick off again. That is unless the governments of the PIGS find it impossible to force through the necessary austerity measures which will bring that date forward.

As always do your own research.

- All yields are month end except February which is 13 May 2010

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