In recent developments, US 10-year Treasury yields have increased by 4 basis points to 4.54%, following Federal Reserve Chair Jerome Powell’s announcement that interest rates will likely remain unchanged at the upcoming March meeting. After the last 25 basis points rate cut in December 2024, market expectations have now settled on only one rate cut for 2025. This is largely due to persistent US inflation, bolstered by strong job growth, as evidenced by a 0.3% rise in core CPI in January—marking the fifth increase in the past six months.
This development has ripple effects in Australian money markets, causing a sell-off in Australian Commonwealth Government Bonds across the curve. The 10-year yield has climbed by 7 basis points to 4.46%. Momentum is expected to continue, with futures indicating a further 7 basis points rise, culminating in a 14 basis points increase since last Friday’s market close.
Fixed Income Investment Opportunities
These movements have created attractive opportunities in the longer end of the fixed income curve, particularly for 15-20 year bonds. Notably, the QTC 4.2 2047 and TCV 2.4 2050 are yielding approximately 5.49% and 5.66%, respectively. These AA+ rated semi-government securities represent a stable and lucrative investment in the current climate of economic volatility.
Given the ongoing volatility stemming from both the US and European markets, semi-government bonds are increasingly seen as a safe haven and a flight to quality for fixed income investments. Investors seeking to diversify their portfolios and secure fixed income should consider these opportunities.
For those interested in exploring fixed income investments further, these developments signal a promising time to reassess and potentially expand investment portfolios, focusing on longer-term securities that promise stability and attractive yields.
