There has been a big drop in Aussie government bond prices, and an increase in yields, over the last few weeks, as the Greeks resolved their political impasse and the prospects of an orderly recovery for Europe and the US improve. In the futures market, 3 year government bond yields have risen more than 50 basis points from under 2% (or above 98 in price terms) to now over 2.5% (or below 97.5 in price terms). The probability of future rate cuts will have declined in lock-step...This is very good news. It means the likelihood of a full-blown catastrophe is receding--although it certainly still exists in the distribution of future possibilities! While global growth in the second quarter will probably be less than inspiring given all the disruptions and negativity we have had to endure, the second half of the year holds out better hope.
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