Australian Bond Exchange Weekly Update
24th January 2025
Key points
- Trump calls for lower oil prices – and interest rates
- UK Unemployment rises
- Canadian inflation falls
- Yields on U.S inflation-protected Treasuries rise
Global Cash Rates & Inflation
- The Reserve Bank of Australia (RBA) Cash Rate now sits at 4.35%pa and the annual inflation rate in the year to November is 2.3%.
- The US cash rate (policy rate) is currently between 4.25%-4.50%pa and the annual inflation rate in the year to December is 2.9%.
- The Bank of England Bank Rate currently sits at 4.75%pa to fight an inflation rate of 2.5% in the year to November.
- The European Central Bank Cash Rate (deposit facility) is 3.0%pa, to fight an annual inflation rate of 2.4% in the year to November.
Trump Calls For Lower Oil Prices – and Interest Rates
Speaking via video link at the World Economic Forum in Davos, President Donald Trump has called for lower oil prices and interest rates, emphasising his belief that both measures are essential to sustaining economic growth – and could also help to end the war in Ukraine.
Trump also reiterated his warning to impose tariffs on nations that do not manufacture their products in America, doubling down on his “America First” agenda during his remarks.
For Australian investors, these developments could have significant implications, particularly in sectors more predisposed to global trade, energy prices, and interest rates, while lower oil prices could provide some relief for energy-dependent industries.
UK Unemployment Rises
The United Kingdom’s unemployment rate climbed to 4.4% in the three months ending in November, up from 4.3% in the previous quarter. This marks the highest unemployment rate in nearly two years, reflecting a labour market under pressure as economic growth slows.
The increase in unemployment adds to mounting evidence of a cooling economy, which could prompt the Bank of England to resume rate cutting after holding its key policy rate steady at its last meeting.
Canadian Inflation Falls
Canada’s inflation rate dropped to 1.8% in December, marking a significant cooling in price pressures. A key factor driving this decline was the federal government’s GST holiday, which temporarily reduced prices on essentials such as restaurant meals, alcohol, and children’s clothing.
Looking ahead, the Bank of Canada is set to meet on January 29, with many analysts predicting another 25-basis-point rate cut in response to slowing inflation and softening economic conditions.
If enacted, this would mark the second consecutive rate reduction as the central bank seeks to bolster growth and maintain financial stability.
Yields On U.S inflation – protected Treasuries Rise
While cash rates set by central banks have been falling in many jurisdictions, government bond yields in the U.S., Australia, and other markets have been rising. This divergence highlights a contrast between the near-term and long-term economic outlook.
Central banks are signalling short-term easing to support growth amid slowing economies, while bond markets are pricing in expectations of higher long-term inflation, fiscal pressures, or stronger future growth.
This was further demonstrated this week with the latest auction of inflation-protected U.S. Treasury bonds, which drew their highest yield in more than a decade.
The $20 billion sale of 10-year Treasury Inflation-Protected Securities, or TIPS, was awarded at 2.243%, the highest result since January 2009.
While inflation has eased significantly since its pandemic-era peaks, the market anticipates that inflation will remain a persistent factor in the years ahead. This expectation reflects underlying confidence in a resilient and strengthening U.S. economy, where sustained demand and robust activity could continue to drive moderate price pressures.
For investors seeking to hedge against the risks of rising inflation, ABE can provide access to inflation-linked bonds, offering a way to preserve purchasing power while benefiting from yields that adjust in line with inflation rates.
For more information, contact your adviser today.
*Data accurate as at 24.01.2025
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