The reaction of bond and money markets to the Reserve Bank’s decision to keep rates on hold was a non-event to say the least.on his time as governor by staying put and judging by the tiny moves in the three and ten-year bond futures contracts a hawkish hold was precisely what the market expected.
The 4.46 per cent yield on the May 2041 government bond implies at least one interest rate rise to 4.35 per cent between now and then – but as fixed income investors would point out, there’s a lot of uncertainty baked into that yield.In money markets, the probability of another interest rate increase before the end of the year is still about one in three.
Meanwhile, the prospect of an interest rate cut by the end of 2024 had been fully priced in, but now the implied cash rate is about 3.9 per cent. If we take the bond market at face value this is what it is telling us: There’s a modest chance that the Reserve Bank may lift interest rates again late this year or early next year, but it probably won’t. If they do, they will be cutting interest rates either once or twice before the end of next year.