The FINANCIAL — Australian inflation-linked bonds are signalling that gains in consumer prices may slow more than the central bank is expecting as an export boom peaks.
Yields on the securities show that traders reduced their forecast for annual inflation over the next five years by six basis points last week, the steepest decline since September, to 2.42 per cent. At one point the debt implied a rate of 2.37 per cent for inflation, the lowest in 14 months. That compares with the 1.83 per cent indicated by similar bonds in the US.
The Reserve Bank of Australia, which cut interest rates last week for the first time in two-and-a-half years, may be too bullish in estimating that gross domestic product will expand 4 per cent in the 12 months ending June 30, 2012, according to the bond market. Money-market securities show traders expect the RBA will lower what is still the highest benchmark rate among major developed economies by one percentage point within 12 months.Australian inflation-linked notes have generated 13.7 per cent returns this year, outpacing the 10.5 per cent offered by the rest of the nation's government debt, Bank of America Merrill Lynch indexes show.
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