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AU-US 10Y spread at 17-year low, AUD no longer a high yielding currency?

  • The 10-year Australia-US bond yield spread drops to lowest since June 2000.
  • Increased risk of AUD losing its "high yielding currency" tag.

The spread currently stands at 13.5 basis points (bps); the narrowest since June 2000. It means the 10-year Australia bond yield offers 13.5 basis points more than its US counterpart.

Monthly chart

The above chart shows-

  • The spread stood at 292 basis points in 2008 and fell to 118 bps after the crisis.
  • It widened to 263 bps by Nov. 2010 and since then has been narrowing in the AUD negative manner.
  • The spread could soon turn negative as Fed is expected to hike rates in December. Further, it could raise rates three times in 2018. Meanwhile, RBA is seen keeping the status quo next year. 

The falling spread and the fact that is close to being zero could be an indication that AUD is slowly losing its "high yielding currency" status.

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