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Bond yields are useful for telling us about the future. And it's not looking good

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24.06.2019

On Monday the prime minister gave a speech to the WA Chamber of Commerce that outlined some economic policies he planned to pursue. Chief among them was cutting red tape (apparently the past six years have not afforded them the opportunity to do this). It was a very tepid response to an economic situation that demands much more serious attention.

Last week for the first time ever Australian government two year and three year bonds fell below 1%, and then on Friday so too did the rate (or “yield”) for five year bonds:

I know bond yields are not the sexiest of subjects (unless you go in for that kind of thing and, knowing my readers, there are a few of you out there who do!) but they give us a good insight into where the economy is likely heading.

They also put paid to any hogwash that the government could rightly have claimed during the election campaign that the fundamentals of the economy were strong.

Government bonds are essentially how the government borrows money. Right now the government has borrowed $541bn worth of money via bond issues and they are for various time periods – think of it like a term deposit.

Now just like you taking out a term deposit at a bank, the government has to offer an interest rate (known as a yield) to entice investors to give them their money.

Because the Australian government will not go bust, the interest rates for bonds are lower than bank term deposits, and generally the........

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