In this week’s episode, James and Anthony look at why surging bond yields have markets in a panic and what it means for the Reserve Bank of Australia and the local economy.with your written question, your name, and where you are from. Or record a voice memo on your phone and attach it to the email., and then the 30-year yield, which is a more long-term measure of the cost of capital, hit 4.9 per cent.
It’s that rapid repricing that’s got everybody scrambling to adjust. It’s a similar story in Australia. The Australian 10-year bond yield has gone from 4 per cent at the start of September to 4.6 per cent., the bond yield sets the cost of capital and then everything gets repriced off that, so eventually the banks will reprice their loans and their term deposits, investors will start to reprice the shares of equities and that’s what we’ve seen start to happen this week.
The [first flow-on effect] is share prices. Bond yields are used to discount the value of a company’s future profits, so when a bond yield is higher, the discount needs to be bigger, and share prices fall.