“Australian government bonds are poised to extend the best rally among top-rated nations as local policy makers cut interest rates in response to global monetary easing, according to Pacific Investment Management Co.
“Hyperactive monetary policies underway across the vast majority of the developed world” will keep the Australian dollar strong, Robert Mead, head of portfolio management at Pimco’s Sydney office, said at the Bloomberg Australia Economic Summit this week. “The escape valve becomes monetary policy once again and that probably starts to show up sooner rather than later.”
The country’s 10-year yields fell 31 basis points over the past month to 3.31 percent, the biggest drop among 10 sovereign markets with AAA scores from all three major ratings companies. The notes offer more than twice the average for top-rated peers even after the yield plunged 2.3 percentage points in two years.
The Aussie dollar reached a 28-year trade-weighted high this week after the Bank of Japan (8301) surprised forecasters on April 4 by doubling monthly bond purchases to almost match the Federal Reserve’s extraordinary monetary easing. The erosion in export earnings, along with a slowdown in China, will damp Australia’s economy and pressure the Reserve Bank to cut rates to a record, according to Pimco, which runs the world’s biggest bond fund.
