Tamar Hamlyn

The Australian Commonwealth budget announcement overnight has confirmed the size and trajectory of the Australian government bond market. The Australian Office of Financial Management’s (AOFM) updated issuance plans also indicate that bond supply will remain persistent. This acts to underpin capacity in the bond market for large investors seeking access... Show More

Hi Han, correct, a reduction in demand for USD would increase supply, thus lowering rates when looked at in isolation. In addition, reduced demand for USD would also likely lower the exchange rate against other currencies. Thus for investors to be willing to hold USD, they would likely require higher interest rates to compensate. On top of this, a reallocation of reserves would also reduce demand for US bonds, including Treasuries. Reduced demand for bonds means a lower price, and thus a higher yield. This would raise long-term interest rates as well. The combined effect of these multiple influences can be difficult to gauge, but at a very general level reduced demand for an asset means a higher rate of interest must be paid to attract investors.

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