Australian bond yields crash to record lows

AUSTRALIAN bond yields suffered their biggest one-day fall in more than three years, hitting fresh all-time lows as investors flocked to them after US President Donald Trump’s threat to impose higher tariffs on China.

Yields on the three and fiveyear bonds were down more than 11 basis points, while yields on the 10-year bond were down nine basis points, their biggest one-day falls since June 24, 2016, the day the United Kingdom voted to leave the European Union.

The declines followed a similar crash in US bonds yields.

Bond yields fall as more investors buy the safe harbour investments, generally because they are spooked about the prospects for global growth.

The yields on three-year bonds fell from 1.9 per cent in November to 0.83 per cent on Thursday – and then to 0.74 per cent yesterday morning. “That’s an amazingly low level,” AMP senior economist Shane Olive Oliver said.

Australian 10-year bond yields have fallen from 2.7 per cent in November to 1.1 per cent, while five-year yields have gone from 2.2 per cent to 0.77 per cent. Australian bonds are seen as more attractive than European and Japanese bonds that have negative yields, he said.

The ultra-low yields will have a limited impact on the broader Australian economy, Dr Oliver said. But they could mean lower fixed-rate mortgages for new borrowers and make it cheaper for large corporations to borrow money, since corporate bond yields are based on government bonds.

The low yields would also be good for superannuation funds, which often hold 15 to 20 per cent of their portfolio in bonds. The lower yields means existing bonds are worth more.