ALTAIR’S CHIEF ECONOMIST STEPHEN ROBERTS FEATURES IN FINANCIAL STANDARD

Financial Standard: A recent rise in bond yields across Europe, America and Australia is nothing but a blip on the radar according to Altair Asset Management chief economist, Stephen Roberts.

A recent rise in bond yields across Europe, America and Australia is nothing but a blip on the radar according to Altair Asset Management chief economist, Stephen Roberts.

In his latest economic insights column, Roberts said the risk of recession in Australia is still small but higher than it was earlier this year. He said the risk will be worrying the Reserve Bank of Australia (RBA) and means the next move in the Australian cash rate is most likely to be downwards.

"Meaning that Australian bond yields have probably risen too far," Roberts said.

"It also implies that the downward correction in the Australian sharemarket, driven substantially by falls in high-yielding bank shares, may have pushed too far as well in our view, especially if Australian bonds start to rally again."

Roberts said the case for Australian bonds to begin rallying again is perhaps strongest of all. This would be partially explained by a first quarter GDP growth of 0.9% (quarter on quarter) that was driven by a lift in exports and inventories.

He said household consumption and housing "look precariously supported in an environment of very low wages growth, a rundown in household savings and a housing price bubble inflating further in Melbourne and Sydney."

"It is not possible to predict when the Melbourne/Sydney house price bubble will pop, but if it does over the next year or two coinciding with when the hole in growth from the decline in mining investment spending is at its deepest, the risk that Australia could experience a recession is quite high," Roberts said.

Roberts added his view that the rise in bond yields is a also blip in the United States where the Federal Reserve continues to prepare markets for the first official interest rate increase in a decade. He said Europe had improved relative to the most pessimistic assessments of some analysts earlier in the year, however growth is still soft and there is still ample spare capacity.