Many investors have been anticipating Australian interest rates to rise at some point over the past two years. They have been consistently wrong. The Reserve Bank of Australia's latest move to cut its cash rate to a fresh low of 2.25 per cent might have pushed investors too far in the other direction. Yields on benchmark three-year Treasury notes have sunk to 1.8 per cent, suggesting the market is expecting another couple of rate cuts. But last week's reversal hammer candlestick suggests the market is pricing in too much too soon. Yields have bounced to the psychological 2 per cent level and might yet squeeze up to 2.25 per cent where they are likely to settle while getting used to their "new normal". For sure, there is still room for interest rates to go down, but that is likely a story for later this year.
