QE will result in lower bond yields in Australia

The decline in bond yields in Australia and New Zealand throughout 2019 has paused in recent months following optimism about a potential trade deal between the US and China and hawkish language from the Fed. But we think that bond yields in both countries will resume their decline in 2020. We think that rising unemployment, sluggish growth and easing inflation will force the RBA to cut rates to 0.25% by the middle of next year. What's more, we expect the RBA to cross the Rubicon and launch quantitative easing in 2020 adding to downward pressure on bond yields. In New Zealand, we expect weak GDP growth and a deteriorating labour market to prompt the RBNZ to cut rates twice next year, more than investors currently anticipate. The upshot is that we expect yields to decline further in Australia and New Zealand despite our expectation of a rise in US yields in 2020.