Australian Bond Exchange Weekly Update
11th April 2025
Key Points
- Australia: The Reserve Bank of Australia (RBA) has kept the cash rate steady at 4.10% per annum. Inflation for February stands at 2.4%, with the trimmed mean at 2.7%.
- United States: The Federal Reserve maintained its cash rate within the range of 4.25% – 4.50% per annum. March’s inflation data declined to 2.4%. Core inflation (excluding food and energy) rose by 2.8%.
- United Kingdom: The Bank of England (BoE) has held its Bank Rate at 4.50%. February’s inflation eased to 2.8%, down from 3.0% in January.
- Eurozone: The European Central Bank (ECB) kept its deposit facility rate unchanged at 2.50% per annum. Inflation in February moderated to 2.3%, compared to 2.5% in the previous month.
Market Insights
- US Government bond market turmoil.
- Australian consumer confidence falling strongly.
- Fitch Rating Agency downgrading China’s credit rating to A from A+
US Government bond market turmoil
An unsettling shift is starting to unfold as Donald Trump’s trade war hammers financial markets: US Treasuries, far from offering shelter from the turmoil, are suddenly losing their safe-haven appeal.
The US 10-year bond yields started to rise in the past couple of days from a low of 3.86% to as high as 4.5%. This strong reversal is a strong warning sign that something has gone wrong and everyone is trying to figure out what caused this massive selloff.
Markets got a massive release on Wednesday night when President Trump announced significant changes to U.S. tariff policies. He imposed a 90-day pause on tariff hikes for over 75 other countries, reducing the baseline tariff to 10% for these nations.
However, he continues to place pressure on China and raised tariffs on Chinese imports to 125%, citing China’s retaliatory measures and perceived unfair trade practices.
Australian Consumers hit by global turmoil
Australian households are growing increasingly wary of global developments, with consumer confidence taking a noticeable hit in April. The Westpac-Melbourne Institute Consumer Sentiment Index dropped by 6%, falling from 95.9 in March to 90.1, reflecting broad-based concern across the economy. Sentiment weakened sharply over the course of the survey week, with steep falls following the ‘reciprocal tariffs’ announced by US President Trump on April 2.
With the situation still deteriorating, there is a clear risk of more significant sentiment declines in the months ahead. All component indexes deteriorated in April. The Westpac Melbourne Institute Consumer Sentiment Index is a composite measure based on five sub-indexes: two tracking assessments of family finances, two tracking expectations for the economy and one on whether now is ‘a good time to buy a major household item’.
Fitch Downgrades China to ‘A’ Amid Fiscal Concerns
Fitch Ratings has lowered China’s Long-Term Foreign-Currency Issuer Default Rating from ‘A+’ to ‘A’, citing mounting pressure on the country’s public finances and a rapidly rising government debt profile. According to Fitch, the downgrade reflects expectations that China will maintain a reliance on fiscal stimulus to counter subdued domestic demand, elevated tariffs, and persistent deflationary trends. These support measures—although aimed at stabilising growth—are likely to prolong elevated fiscal deficits, especially as the government grapples with a structurally weakening revenue base.
The agency also noted that the government debt-to-GDP ratio is expected to continue rising, driven by sustained budget shortfalls, the realisation of contingent liabilities, and slower nominal GDP growth during China’s ongoing economic transition. This adjustment by Fitch adds to growing concerns around China’s long-term fiscal sustainability and may prompt closer scrutiny from investors as the country balances economic stabilisation efforts with rising debt obligations.
Final Thoughts
The global economic landscape continues to evolve, shaped by international trade developments, shifting inflation trends and central bank actions. These forces are influencing both market behaviour and consumer sentiment, underscoring the importance of staying informed and agile.
As we look ahead, close attention to monetary policy signals, geopolitical events, and cross-border economic pressures will be key to anticipating the direction of financial markets. The interaction of these variables will play a critical role in defining the economic outlook—both for Australia and the broader global economy.
*Data accurate as at 11.04.2025
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