Australia: Rates rally, curve flattens on coronavirus concerns – ANZ

The Australia and New Zealand Banking Group (ANZ) analysts assess the impact of the China coronavirus outbreak on the Australian debt markets.

Key Quotes:

“The outbreak of a coronavirus strain in the Chinese city of Wuhan is having a growing impact on market sentiment.

Bond yields have fallen sharply in the past ten days or so. 3y and 10y ACGB yields are closing in on previous historical lows.

The rally in the 10y ACGB has outpaced that of the front-end, with the curve flattening. This reflects both the proximity of the RBA’s effective lower bound (ELB) and the strength of the US rally.

We think it is far too early to start looking for the rebound in yields that will almost certainly follow news that the virus is contained. It seems more likely that historic lows in the 3y and 10y ACGB yields will be reached in the meantime, with the curve bull flattening.”