Australia’s
central bank is signaling its success in weakening the currency will spur
inflation, adding to pressure on the developed world’s worst-performing bonds.
A
surge in yields since Feb. 4 pared returns for the past six months to 1.2
percent, an index of debt due in more than a year shows, the smallest gain of
22 advanced-economy markets tracked by the European Federation of Financial
Analysts Societies and Bloomberg. Inflation may reach a two-year high 3.25
percent, the Reserve Bank of Australia said this month. Assistant Governor
Christopher Kent said Feb. 14 accelerating economic growth may drive costs
higher.
The
real yield on Australian bonds after accounting for consumer-price gains will
be less than investors earn from Treasuries if the RBA is correct. Policy
makers raised their forecast after the currency weakened 14 percent in 2013 and
housing costs rose to a record, boosting the odds RBA Governor Glenn Stevens’
next move will be a rate increase.
The
RBA dropped its easing bias at the Feb. 4 policy meeting and said inflation
last quarter was stronger than expected, possibly because the impact of a lower
exchange rate was being passed on more rapidly than anticipated.
(Source: Bloomberg)