Insight: April 2023 Yld Doesn’t Have to Fall When April 2024 Becomes RBA Target

By Sophia Rodrigues

The April 2024 government bond will soon become the Reserve Bank of Australia’s three-year target but it doesn’t mean it expects the April 2023 yield to fall below the target.

This means at the current yield target of 0.25%, both the April 2024 and the April 2023 yield could be trading around that mark.

If the target moves lower to 0.1%, the RBA’s focus would be mostly on the April 2024 bond. The April 2023 or bonds with maturity prior to that can be at 0.1% or closer to that but not significantly above 0.1%.

CB-Intel expects the RBA to lower the cash rate to 0.1%, along with a cut in the rate on Term Funding Facility and a cut in the three-year yield target. CB-Intel also expects the rate on Exchange Settlement balances to be lowered to around 5bps.

Previously, the expectation was the cut could be delivered at the October 6 board meeting or before the end of the year, but now it looks increasingly likely October is no longer live and November is the preferred timing.

The bond market is pricing in possibility of a cut in the three-year yield target so the current levels are well below 0.25%, and moving towards 0.1%.