ASX gains on banks, miners; Boral's Fagg to retire in 2021
Yields dive as RBA readies for QE
The Australian bond market is readying for outright quantitative easing after Reserve Bank governor Philip Lowe dropped his strongest hint yet that the central bank will take on bond purchases of longer maturities in the style of the Federal Reserve.
Pendal's head of fixed income Vimal Gor said the Reserve Bank is "finally succumbing to needing to do QE, over a decade after most central banks." LOUIE DOUVIS
The Australian 10-year bond yield plunged on Thursday from 0.845 per cent to 0.76 per cent in response to Dr Lowe's acknowledgement he was evaluating buying long-term bonds. Australia's 10-year rate is one of the highest in the developed world.
"Whether you call this money printing, money financing or even MMT is a definition for economists to argue about. Quite simply the government has discovered it can finance itself," Pendal's head of bond, income and defensive strategies, Vimal Gor, said.
Analysts say long-term bond rates should fall further as the central bank plays QE catch up with the rest of the world.
Commonwealth Bank fixed income analysts Martin Whetton and Phil Brown forecast the 10-year bond rate to fall to 0.55 per cent by the end of 2021, reducing the differential with US 10-year bonds to nil.
Read more about the RBA's quantitative easing plans here.
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