Research
What drives bond yields – Part 6: Long-term projections of bond yields
Michael Anthonisz, QTC Chief Economist
Published: 13 December 2024
5 min read
This note, the sixth and final in a series on the drivers of bond yields sets out projections for Australian and US Government bond yields over the next few decades. It builds on the concepts outlined in the first note of the series, the estimates and trends covered in the second note, the drivers of the sub-components of yields identified in the third note, as well as topical examples of factors which influence key sub-components of yields in the fourth (equilibrium interest rates) and fifth (US fiscal trajectory) notes.
What drives bond yields – Part 5: US fiscal trends
Michael Anthonisz, QTC Chief Economist
Published: 8 November 2024
5 min read
The US Government’s fiscal position has slowly but consistently weakened over an extended period. If left unaddressed this could at some point lead to some disruption in global financial markets. This note examines trends in and the outlook for US public finances as well as what the potential impact of these might be on US Treasury bond yields.
This note, the fifth in a series on the drivers of bond yields, provides a topical example of a factor – US fiscal trends – which could impact the risk (or ‘term’) premium, a key sub-component of bond yields. It builds on earlier notes in this series. The first outlined the different sub-components of yields including expectations and risk premiums for short‑term real interest rates and inflation. The second presented estimates and a discussion of trends in these while the third note identified drivers of the sub-components. The fourth note presented a deep dive into a factor (equilibrium interest rates) which could impact the other component of bond yields, expected short-term interest rates. The next note, the final in the series, will present long‑term projections for US and Australian Government bond yields.
What drives bond yields – Part 4: Natural rates vs neutral rates
Michael Anthonisz, QTC Chief Economist
Published: 16 October 2024
5 min read
This note, the fourth in a series, provides a topical example of a factor – equilibrium interest rates – which could impact expectations of short-term real interest rates, a key sub-component of bond yields. It builds on the concepts outlined in the first note of the series, the estimates and trends covered in the second note, and the drivers of the sub-components of yields identified in the third note. Future instalments in the series will include a deep dive into a topical factor that could influence another key building block of yields – the risk (or ‘term’) premium – as well as present long-term projections for bond yields.
What drives bond yields – Part 3: Catalysts
Michael Anthonisz, QTC Chief Economist
Published: 19 Septembert 2024
5 min read
This note, the third in a series, attempts to identify what drives the different sub-components of bond yields. It builds on the concepts outlined in the first note of the series as well as the estimates and trends covered in the second note. Future instalments in the series will include deep dives into topical factors which could influence these sub-components and present long-term projections for bond yields.
As a reminder, there are four sub-components of bond yields. These are related to investor expectations for real interest rates and inflation as well as premiums charged by investors to account for the risk that actual real interest rates and inflation might differ from these expectations if they buy a longer-term bond rather than a series of shorter-term securities.
Estimates of these sub-components are useful in gauging which could be driving changes in bond yields over time. However, it is not necessarily clear what the precise catalysts for moves in these sub-components might be. Identifying these in the context of US Treasury 10-year bond yields is the purpose of this note.
What drives bond yields – Part 2: Trends
Michael Anthonisz, QTC Chief Economist
Published: 26 August 2024
5 min read
This note, the second in a series, examines trends in the sub-components which make up bond yields. It builds on the concepts set out in the first note which focussed on trends at the component level. Future instalments in the series will attempt to identify what could be behind movements in these sub-components, provide deep dives into topical factors which could influence these and present long-term‑ projections for bond yields.
What drives bond yields – Part 1: Overview
Michael Anthonisz, QTC Chief Economist
Published: 8 August 2024
5 min read
This note provides an overview of what drives movements in bond yields. This introductory piece is the first in a series with future notes to explore the components of yields in more detail, provide deep dives into topical factors which could influence these and present long-term projections for bond yields.
4 questions for ’24
Michael Anthonisz, QTC Chief Economist
Published: 11 January 2023
5 min read
Last year saw inflation moderate and economic conditions remain resilient. Hopes for a ‘soft landing’ are high, yet so too is uncertainty around the outlook for the economy.
Given a lack of clarity around the outlook, in this piece, I try to shed some light on four of the key questions for 2024.
- What has driven the Australian economy’s rebalancing and what could in 2024?
- What would it take for inflation to get back to the middle of the RBA’s inflation target band by the end of 2025?
- What is the likelihood of a US recession this year?
- What are the main economic and market risks (upside and downside) for 2024?
What goes up must come down – When, why and by how much will interest rates be cut
Trent Saunders, QTC Principal Economist and Michael Anthonisz, QTC Chief Economist
Published: 6 October 2023
5 min read
The Reserve Bank of Australia (RBA) has raised its cash rate rapidly since early last year to curb inflation and anchor expectations. But this phase may be nearing its end. In this article, QTC economists Trent Saunders and Michael Anthonisz have taken a closer look at where the cash rate might go from here, drawing on historical experience and some of the unique challenges facing the economy. They find that while there are good reasons to believe the cash rate is close to its peak, this does not mean that the RBA will cut rates anytime soon.
How tight is monetary policy in Australia?
Michael Anthonisz, QTC Chief Economist
Published: 13 February 2023
5 min read
With the RBA increasing interest rates by a record amount over the past year and with rates at the highest level in a decade, QTC’s Chief Economist Michael Anthonisz asks in this note ‘how tight is monetary policy in Australia’?
What effect will higher interest rates have on the Australian economy?
Trent Saunders, QTC Principal Economist
Published: 1 August 2022
9 min read
The Reserve Bank of Australia is expected to increase the cash rate sharply over the coming year in response to the high outlook for inflation. In this article, QTC’s Principal Economist Trent Saunders looks at how cash rate changes have affected different parts of the economy in the past, as well as whether these responses might be different in the current cycle.
Assessing US recession risks
Michael Anthonisz, QTC Chief Economist
Published: 30 May 2022
5 min read
In this article, QTC Chief Economist estimates the probability of a future recession using the 2‑year/10-year yield curve as well as a range of alternate measures. He finds that the 2-year/10-year yield curve currently overstates the odds of a US recession over the next 12 months. Though, given the scale of the inflation challenge in the US and the relative lack of ‘soft landings’ in these contexts historically, it would not be surprising to see aggressive rate hikes from the Federal Reserve lead to a recession over a longer time horizon.
Part 2 of 2 – How high could the RBA take the cash rate? Estimates of the neutral and terminal rate in Australia
Trent Saunders, QTC Principal Economist
Published: 22 February 2022
9 min read
This is the second of a two-part series by QTC’s Principal Economist Trent Saunders, which explores the longer-term outlook for the cash rate. This follows Trent’s previous article ‘Part 1 of 2 – An RBA hiking cycle: Some paths less travelled’ that discussed the expected timing of the initial increase in the cash rate and the path it may take over the next couple of years.
Part 1 of 2 – An RBA hiking cycle: Some paths less travelled
Trent Saunders, QTC Principal Economist
Published: 28 January 2022
9 min read
The strength of the economic recovery, coupled with a rise in global inflation, has seen an increased focus on the outlook for monetary policy in Australia. Indeed, even though the Reserve Bank of Australia (RBA) has suggested that cash rate hikes are unlikely this year, market-based measures suggest that this could occur as soon as mid-2022. Given these different views, in this note I examine different paths the cash rate could take during a policy tightening cycle, something we haven’t encountered for some time.
This is the first of a two-part series exploring the outlook for the cash rate. The second note will be released in the next fortnight and will discuss the long-term outlook for the cash rate.
Re-assessing Australia’s economic recovery
Trent Saunders, QTC Principal Economist
Published: 29 April 2021
6 min read
Australia’s economic recovery has been swift, with leading indicators suggesting that this rapid rate of improvement could continue in the coming months. In this article, QTC’s Principal Economist Trent Saunders uses three scenarios to project what this unexpected strength could mean for the economic outlook and the RBA’s cash rate decisions through to 2030.
2030 Vision: Outlook for the economy and interest rates
Trent Saunders, QTC Principal Economist
Published: 18 February 2021
6 min read
In a world of uncertainty, it has proven difficult to see beyond short-term time horizons. In this article, QTC’s Principal Economist Trent Saunders explores Australia’s long-term path to economic recovery and alternate perspectives on how the economy and interest rates could evolve over the course of this decade. Using three scenarios and projections he takes a look at how the cash rate could move over the decade to 2030.