Aussie interest rates are stretched and peaking

The study below suggests Australian interest rates will decline over the coming 8 – 15 months.

The circles denotes moments when the Australian government 2 year bond yield simultaneously trades 2.5 standard deviations above its rolling weekly mean, registers a weekly overbought reading and most importantly, it is at a certain extended percentage above its 200 week moving average.

When this event occurs, the probability of mean reversion heightens.

Such an event has only occurred 6 times over the past 35 years.

It highlights a moment when investors may consider allocating a higher proportion of monies towards bonds or fixed income or perhaps locking rates for their cash or term deposits.

Furthermore, borrowers should ponder leaving staying flexible and variable with their interest rates. In other words, you should have a chance to fix rates at lower levels in the months ahead.

For equity investors, moderating interest rates will provide their own trades and opportunities.

Just for kicks, I’ve place the Australian inflation rate (in orange) to show the symbiotic dance it does with the direction of interest rates.

May 19, 2023

by Rob Zdravevski

rob@karriasset.com.au