Reserve Bank of Australia cuts official cash rate to record low 2% at May meeting yesterday.
According to The Australian Financial Review today, there have now been 10 rate cuts since 2011 but financial markets look to be thinking that this rate cut could be the last.
The $A started to head higher and the sharemarket headed lower.
As well as the quick turnaround in shares, almost 100 points from the high to the low, and the $A, that reached an intra-day low of US77.79¢ before heading back to US79¢, bond yields were also heading higher. That too is at odds with a record low cash rate.
Indeed, the yield on the three-year bond yield , which rose on Tuesday by around 11 basis points, is now back above the cash rate at 2.02 per cent, while the 10-year bond yield is hovering around 2.80 per cent, up 11 basis points on the day and up from 2.28 just a few weeks ago.
Rising bond yields is linked to a growing economy, implying better days ahead. The spike in bond yields will put pressure on the so-called hunt for yield, the strategy that has dominated the local sharemarket over the past few years.
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