Aussie-US 2-yr yield spread is losing height ahead of RBA

Expectations that the Reserve Bank of Australia (RBA) would keep its easing bias intact in order to avoid AUD appreciation is weighing over the short-duration bond yields in Australia. 

The 2-yr yield, which is sensitive to short-term interest rate expectations, is trading around 1.638%, compared to Friday’s high of 1.757%.  

The spread with the US counterpart has narrowed from 0.857% on Friday to 0.788% ahead of the RBA rate decision today. The spread stood at 0.813% in the late US session on Monday. 

The relative resilience in the US 2-yr treasury yield is not surprising given the markets are preparing ground for  a rate hike in December.