With key stock indices in the US trading at record highs, investors and analysts are taking stock of whether the current bull market can last.
A new analysis by Barclays argues soaring stock valuations are supported by fundamentals and expectations of policy shifts, but fund managers remain cautious.
The S&P500 was widely expected to fall after President Donald Trump's January 20 inauguration, as has been the historical case for new presidential terms in the past, but the benchmark index has soared ever higher, continuing an eight-year bull run that's seen it hit various records over the start of this year with few significant moderations.
Using one definition of a bull market - a period in which stocks rise 20 per cent or more after a 20 per cent decline - the S&P500 is on its second-longest bull run ever. A broad recovery in US equities has been taking place since 2008, without large correction. Meanwhile the Dow, for which financial stocks like Goldman Sachs have driven most of the recent rally, closed on Wednesday at its ninth-consecutive all-time high, at 20,775.6, its longest run of record closes since 1987
Are US markets being supported by economic fundamentals, or an outbreak of animal spirits? Barclays reckons it is the former.
The investment bank's researchers used historical analysis to argue a series of factors - including low interest rates, expectations of lower taxes due to President Trump enacting his policy agenda, higher earnings per share growth, low volatility and favourable credit-to-growth spreads - explain almost all the S&P500s current valuations.
The model takes 'animal spirits' to be the price-earnings ratio of the S&P500 unexplained by a series of fundamental factors. On its analysis, market exuberance was the only way to explain the high equity valuations of the late 1990s, and a downward drag from investor sentiment is needed to explain the low equity valuations after the financial crisis.
But the model does not find such an unexplained gap between projected S&P500 multiples based on its multi-factor model and current multiples, leading the analysts to conclude it isn't animal spirits driving the markets.
"According, the current price/earnings ratio of 19.4x, although high by historical standards, is far from pricing in excessive optimism, based on our model," the bank's US equity strategy team wrote.
Iron ore's rally to the highest level since 2014 has been so strong even the industry's champions are flagging the possibility of a pullback.
As prices soar towards $US100 a tonne, BHP Billiton says the market is likely to come under pressure, Fortescue Metals forecasts the raw material may moderate and Africa's top supplier sees a deep retracement.
At the same time, Macquarie is warning of steep losses amid abundant supply, and Goldman Sachs has highlighted bulging stockpiles.
"In the short term, we're seeing stocks increase and prices increase at the same time, which is very unusual," Fortescue chief executive Nev Power said on a conference call on Wednesday after the fourth-largest shipper reported first-half profit almost quadrupled. "We will see it moderate back to more sustainable, or should I say historic levels because it does seem to be just driven by a short-term market right now."
The stockpiles are a downside risk, according to Goldman, although strong demand is supporting prices in the near term.
"Inventory levels are likely to increase further and could potentially set new records," the bank said in a report. "An eventual destocking phase would require domestic producers to scale output down as prices fall below the Chinese cost curve, and the outlook for the second half is relatively bearish."
The Chinese steel industry's main lobby group is also convinced the price boom won't last.
"The future is kind of pessimistic," said Frank Zhong, the chief representative of the World Steel Association in Beijing.
His mixed outlook was matched by Beijing's top forecaster, which said the iron ore price would remain strong in the first half, before falling away towards year's end.
"We see an average price of $US65 a tonne for this year," said Lv Zhenhua from the China Metallurgical Industry Planning and Research Institute.
The downbeat message delivered by the opening two speakers at the Metal Bulletin China Iron Ore Conference, held in the port city of Dalian, was in stark contrast to the upbeat mood in the packed room.
"Iron ore traders are very bullish that China's peak construction season in April and May will be a strong one this year," said one participant who asked not to be named. "They think infrastructure spending will carry the market through for the rest of the year."
The iron ore spot price hovered near 2.5 year highs overnight, retreating slightly to $US94.30 a tonne, after peaking on Tuesday at $US94.86. Iron ore futures are down 0.3 per cent at 721.5 yuan.
Former treasury boss Ken Henry has backed the government's 10-year plan to cut the company tax rate, saying it should be done even sooner.
Presently the chairman of NAB, Henry conducted the Henry Review of the tax system for prime minister Kevin Rudd and served as treasury secretary under treasurers Peter Costello and Wayne Swan.
Delivering a keynote address to the Committee for the Economic Development of Australia in Canberra, Henry said the proposal to cut the rate from 30 per cent to 25 per cent over 10 years is insufficient and it needed to be cut "much more quickly than is presently under consideration by our Parliament".
Labor opposed the full tax cut in the election, arguing it would eventually cost $8 billion per year which wasn't provided for in budget estimates.
Henry said the old approach of "buying approval" for tax changes by giving everyone a tax cuts was no longer affordable, meaning proposals had to be pushed on their merits. There was also a case for lifting and broadening the base of the 10 per cent GST.
"It is up to business to create the case for change," he said. "We must start with a realistic assessment of where we are – setting out the challenges and opportunities before us – and a clear roadmap to the future being described by our citizens."
Economist reactions to today's soggy capex numbers are coming in.
While the underwhelming quarterly number as well as the first estimate for the next financial year indicate that animal spirits have still not been unleashed, they're not all doom and gloom:
Daniel Fadwell, ANZ:
The headline capex numbers looked worse that expectations, though the details were not as negative. Plant and equipment spending is likely to contribute a small increase to GDP in Q4 and expectations for non-mining investment in 2016-17 have improved somewhat. Looking ahead, expectations for 2017-18 show continued weakness in mining and possibly some renewed weakness in non-mining – though we don't pay a lot of attention to this first estimate for investment spending.
Ben Jarman, JPMorgan:
The new information here is the capex on plant and equipment which feeds into the GDP next week and that's not that bad. It is slightly up, in fact. We are still expecting 0.7 per cent on Q4 GDP next week. The firms first estimate of next fiscal year spending were on the softer side though. Even though the mining capex drag is fading away, the recovery in non-mining is really tepid at this point. In the context of a very broad global rally in business confidence indices, Australian firms do not appear to be catching the fever, at least with respect to capex plans.
Paul Dales, Capital Economics:
While there is some tentative evidence that non-mining business investment is rising, it certainly isn't rising as fast as widely hoped. This doesn't surprise us as we've been saying for a long time that excess capacity and the structural decline in the manufacturing sector would prevent a big rebound. Overall, these capex plans are disappointing especially as they have been formed at a time when the rise in commodity prices will bring more money into the country. Without a strong rebound in non-mining business investment, Australia will continue to grow slower than its potential rate of 2.8% for a few years yet.
Shane Oliver, AMP Capital:
The decline in the headline number was concentrated in buildings and structures - that particular component is not a driver that goes into the GDP. But the plant and equipment number actually rose. So that's helpful. The detail in the data is not as soft as it first appears. The estimate for 17/18 fell slightly. That's not a good sign. Besides, we are still looking for evidence that mining investment has bottomed while investment in other parts of the economy is not offsetting that fall in mining. What you want to see is a rise in those estimates. I think it keeps alive the prospect for another rate cut although the RBA has set a very high hurdle for taking rates lower."
Annette Beacher, TD Securities:
The planned (raw) spend for 2016/17 at $112b was higher than expected, but the sticker shock was the soft first raw estimate for 2017/18 at $80.6b. This week's RBA Board meeting minutes noted that the economy was coping with shrinking mining investment, and so no doubt the Bank would be disappointed with this weak initial investment estimate for next year.
Michael Turner, RBC Capital Markets:
The near-term outlook remains soft. There is no strong signal of a pick up in business investment. The first estimate for 2017-18 implies something close to flat relative to this year in terms of non-mining investment in nominal terms. It's not terrible but there is no clear signal that it is picking up. Before the numbers, our GDP forecast was 0.8 per cent and there is a downside risk to our forecast.
Michael Blythe, CBA:
It was pretty modest increase in equipment spending, that's relevant to GDP numbers next week. The good news is there appears to be a bit of non-mining activity going on. The good news is the downturn in mining capex is almost over. What we need to see is bit of a pick up in the non-mining side and there are a few tentative indications that things are slowly turning around but it's not a dramatic lift. Capex is going to remain weak until the downturn in the mining side is finally over and done with, we are not quite there yet. Our GDP forecasts are sitting about 0.75 per cent for the December quarter, with extra data to come we'll move that number around quite a bit between now and next Wednesday.
George Tharenou, UBS:
For Q4 real GDP, after partial data on trade and construction already indicated downside risk, we now downgrade our forecast for GDP to 0.7% q/q (was 1.0%) and 1.9% y/y (ahead of final building blocks due next week). Meanwhile, the capex outlook for 16/17 improved (i.e. a fading headwind) to -9%, but 17/18 disappointed with the lowest 1st print in a decade, implying growth of -10% y/y. Nonetheless however, these intentions largely pre-date the recent further improvement in domestic (and global) business sentiment which should support non-mining, while the spike in commodity prices should mean that mining capex troughs earlier than today's survey implies.
Ahmed Fahour - who was criticised by Prime Minister Malcolm Turnbull for his $5.6 million salary - has resigned as chief executive of Australia Post.
Fahour tendered his resignation to the board of Australia Post yesterday and will leave his job in July.
The surprise announcement follows Fahour delivering a first-half net profit of $131 million for Australia Post, up from $16 million a year ago due to a surge in parcel deliveries and e-commerce business.
When Fahour's controversial salary was revealed earlier this month, Turnbull said he had spoken to Australia Post chairman John Stanhope to say it was "too high".
The rise in equity markets has helped Perpetual deliver a 2 per cent increase in first-half net profit but the funds manager has not been able to snap its streak of underperformance against the market.
Net profit increased to $66 million and Perpetual will pay an interim fully-franked dividend of $1.30 on March 24, up from $1.25 a share, it confirmed on Thursday. Revenue rose by 5 per cent to $251.1 million. The stock is up 3.7 per cent to $49.70..
Its key funds management business, Perpetual Investments, posted pre-tax profit up 3 per cent to $58.8 million. Performance fees earned were $3.9 million, $1.4 million higher than the first-half of 2015-16 and $7.8 million lower than the second half of 2015-16.
The average level of funds under management during the half was $30.7 billion, up 2 per cent year-on-year, $22.5 billion of which was in Australian equities.
Most Perpetual strategies over one year have failed to beat the market even though they are ahead of benchmark over five to ten years.
For example, the Australian share fund was 3.3 per cent below the market over one year on a gross basis, and on average 1.3 per cent below for three years, but ahead by 2.5 per cent on average over 10 years.
Perpetual adopts a value style which has been largely out of favour in the current bull market, but that bias appears to be shifting with the correction in yield stocks.
Australia's All Ordinaries index rose around 8 per cent between June 30 and December 31 of 2016; every 1 per cent move in the index is roughly equivalent to between $2.25 million to $2.75 million of revenue for the business. Expenses across the company rose 5 per cent to $160.7 million.
In December, the funds management team went through a shake-up when deputy head of Australian equities Nathan Parkin resigned. Vince Pezzullo replaced Mr Parkin.
Mortgage Choice CEO John Flavell has issued a strong outlook for the second half after a record-setting first half with property market strength in the key regions of Melbourne and Sydney show no sign of abating.
The mortgage broker and financial planning firm revealed half-year profit rose 6.4 per cent to $11.4 million from $10.7 million in the six months to December 31 with a corresponding increase in the fully franked dividend to 8.5c from 8c.
"It's been a half of records," Mr Flavell said of the result which saw the business settle $6.4 billion in home loans taking the mortgage book for $52.4 billion.
"Last week we saw more enquires about home loans in terms of volumes and value than in any other week. This week we have had a number of daily records already," Mr Flavell said.
Mortgage Choice shares edged up on the news, rising 2.9 per cent or 7¢ to $2.48 from $2.41. The shares have been in an upward trend over the last 12 months hitting a low of $1.63 in May 2016.
The result was 4 per cent lower than anticipated by Macquarie analyst Brendan Carrig, but was explained by the firm's decision to move its annual development conference to the second half of the year.
The mortgage broker has been a key beneficiary of the big four banks reliance on mortgage brokers with close to 50 per cent of all mortgages signed by brokers. Double-digit property price growth has given the firm a nice tailwind.
Earnings per share grew at a 16 per cent to 9.4¢ a share from 8.1¢ a share aided by the firms push into financial planning.
Funds under advice at Mortgage Choice rose 35.8 per cent to $423.1 million from $311m. Income from the division rose 20 per cent period to $930,000 from $780,000.
Mr Flavell took aim at comments from the Reserve Bank Governor Phillip Lowe who said yesterday that bigger mortgages and higher house prices were not in the national interest, saying that home ownership had served many Australians well term and the government needed to address the cause of the problem.
"It's like wiping your nose when you have a cold. Initiatives like the first home buyers grant and stamp duty discounts might address the symptoms but they don't go to the cause.
"If the government wants to treat the cause they need to get to the core of the issue and that comes down to supply and demand," he said.
Mortgage Choice shares are up 2.9 per cent at $2.48.
Australia Post chief executive Ahmed Fahour is expected to quit his $5.6 million job later today, after intense scrutiny over his generous pay package, government sources said.
Post announced a bumper half-year profit of $131 million earlier today on the back of solid growth in parcels, despite another 11 per cent fall in letter volumes.
Mr Fahour has been heavily scrutinised in recent weeks over his salary during his eight years at Post, and on Friday resigned as chairman of Victoria's $60 million LaunchVic startup fund.
He has also been under pressure over allegations of sanctioned union rorting revealed in The Australian Financial Review.
More soft data coming in: fourth-quarter business investment fell 2.5 per cent, or more than the expected 0.5 per cent. That's after a 4 per cent fall in the third quarter.
Investment in capital goods, including buildings, structures, machinery and equipment was $27.57 billion in the quarter.
Mining capex down 9.3% in Dec quarter, to be 37.5% lower over the year. Manufacturing and 'other' capex rose at moderate pace in the quarter pic.twitter.com/5IhHUJtMav
— Callam Pickering (@CallamPickering) February 23, 2017
Businesses collectively expect to invest $112.15 billion on capital goods by the end of the 2016-17 financial year, which is 9 per cent lower than the same estimate made for the previous year.
The first estimate of capital expenditure for 2017-18 is $80.62 billion, which is 3.9 per cent lower than the first estimate for 2016-17, and also significantly lower than the $84.8 billion predicted by economists.
The Aussie dollar slipped about two-tenths of a cent to US76.75¢ on the data.
Television company Nine Entertainment has posted a $236.9 million interim loss due to massive write-downs against its goodwill and a settlement to exit a contract to buy US dramas and comedies from Warner Bros.
The network swung from a $28.1 million interim profit in the prior year.
Revenues were down 4 per cent to $662.7 million, reflecting declining advertising spend in the free-to-air television market.
And it says a lot about the health of that sector that "early signs of a more positive market" at Nine Entertainment means the company expects revenue falls in the third quarter of 2016-17 that are "marginally down" on the low single digit it expects for the year.
Still, markets are an expectation game, and Nine is one of the day's best performing stocks, up 7.8 per cent to $1.04.
The cost of Nine exiting its contract with US production house Warner Bros, which led to Nine losing the right to air old repeats of series like The Big Bang Theory and Two Broke Girls, cost the network $84.9 million.
The company also took a $260 million write-down against the value of its goodwill.
Excluding the effect of one-off items Nine reported a 4.3 per cent fall in net profit to $75 million in the six months ended December 31.
Chief executive Hugh Marks said since the Olympics, which was broadcast by rival Seven, Nine had won all the prime-time key demographic target audiences. "And for the important start to season 2017, Nine's audiences are up 13 per cent and commercial audience share up 3.9 points," he said in a statement.
The company reiterated its plans announced at is annual general meeting last year to rip $50 million from its cost base by 2018-19.
Group EBITDA before one-off items fell 6.4 per cent to $119.7 million.
Analysts expect group EBITDA for the full year to be in the range of $158 million to $187 million and Nine said "subject to short-term market conditions" that was an appropriate range.
The board declared an interim dividend of 4.5¢ payable on April 19.
Hundreds of thousands of Australians who work on Sundays will have their take-home pay slashed after a landmark ruling by the national workplace umpire.
The Fair Work Commission just announced that Sunday penalty rates paid in retail, fast food, hospitality and pharmacy industries will be reduced from the existing levels, which, in some cases, are as much as "double time".
Tuesday: If you want to own a home, get a high paying job
— _robcorr (@_robcorr) February 23, 2017
Wednesday: Wage growth is at a new record low
Thursday: Take this pay cut
💩💩💩
Full-time and part-time workers in retail will have their Sunday penalty rates dropped from 200 per cent to 150 per cent, while casuals will go from 200 per cent to 175 per cent.
The controversial decision will anger Australia's union movement, which has invested heavily in a massive campaign to safeguard weekend penalty rates across the country.
Not listed but still interesting: Australia Post has announced a bumper half-year profit of $131 million on the back of solid growth in parcels, despite a further 11 per cent fall in letter volumes.
Chief executive Ahmed Fahour, who has been heavily scrutinised in recent weeks over his $5.6 million salary, said the result showed the company is on the "right path" to transforming itself from a traditional postal service to a parcel and e-commerce firm.
Fahour, who on Friday resigned as chairman of Victoria's $60 million LaunchVic startup fund, has also been under pressure over allegations of sanctioned union rorting revealed in the AFR.
He is expected to face questions of his eight-year tenure today ahead of chairman John Stanhope fronting a parliamentary inquiry next Tuesday.
The good result came on the back of domestic parcel volumes jumping 5.7 per cent, revenue jumping 8.2 per cent to $3.5 billion and gains from business efficiency programs.
The $131 million profit in the six months to December 31 was up from just $16 million for the prior corresponding period the year before and a $222 million loss in 2015.
Australia Post's pre-tax profit also jumped from just $1 million to $197 million over the six months.
The first-half profit of Dreamworld owner Ardent Leisure more than halved after a fatal accident that killed four people last October and closed the attraction for over a month.
Sydney-based Ardent said core earnings dropped to $12.8 million in the six months to December from $30.5 million a year earlier. Revenue fell 5 per cent to $317.2 million.
"The results for the period were significantly impacted by the Dreamworld tragedy and the theme park's subsequent shutdown for 45 days," the company said.
"In addition, the group recorded a statutory loss of $49.4 million [compared with a profit of $22.7 million], primarily impacted by a $95.2 million property, plant and equipment write‐down, goodwill impairment and incident costs associated with the Dreamworld tragedy."
It declared a 2¢ interim dividend, down from 7¢ a year earlier.
The tragedy that led to claims Dreamworld had ignored safety concerns and tested the company's management skills cut Ardent's share price overnight from $2.55 to $1.88. The shares closed at $2.17 on Wednesday.
Other one‐off events that impacted earnings include the five‐month closure for refurbishment of Kingpin Crown and the loss of more than two months of earnings from Health Clubs following the completion of its sale in October 2016. It made a $45 million profit on the October sale of its Health Clubs unit for $260 million.
Ardent shares are getting punished, now down 19 per cent to $1.75.
The overall market may be deep in the red, but that's not due to today's flood of earnings, which has washed up quit a few more winners than losers:
- Qantas: +5.4%
- Westfield: -1%
- Crown: +4.2%
- Oz Minerals: +0.2%
- Alumina: -1.3%
- Ramsay: -4.4%
- Nine: +5.7%
- Southern Cross Media: flat
- Ardent Leisure: -13.4%
- Estia Health: +11.6%
- Flight Centre: -7%
- Webjet: +2.6%
- Macquarie Atlas: +0.6%
- Investa: +0.4%
- Air NZ: +3%
- Freelancer: +3.8%
- McGrath: -6.25%
- Perpetual: +1.2%
- Trade Me: +0.8%
- MYOB: +4.4%
- Kogan: +4.4%
- ClearView: -4%
- Invocare: +4.9%
- Asaleo Care: +4.2%
- Breville: +0.7%
For more on today's earnings, go to the AFR's reporting season blog
Shares continue their trend of soggy starts as investors sort through the latest welter of earnings results, including the likes today of Qantas and Crown.
The ASX 200 is off 22 points or 0.4 per cent at 5783, as traders continue to shy away from the 5800-point mark. Investors look to be taking profits in BHP, Rio and Fortescue, despite their recent massive earnings results and talk of more shareholder largesse t come. BHP is off 2.6 per cent, Rio 3.5 per cent and FMG 1.1 per cent.
Also dragging on the ASX are the supermarket owners, as Woolies gives up some of yesterday's blockbuster gains to be down 1.2 per cent, while Wesfarmers is off 0.7 per cent. The big banks are down a bit, aside from CBA which is up 0.3 per cent after trading ex-dividend yesterday.
But back to results, and investors like the numbers put up by Qantas, which is 2.8 per cent up, and Crown, which has jumped 4.2 per cent. The morning's biggest winners are Estia and Nine, as you can see from the chart below, also on earnings updates.
Among the biggest losers reporting earnings are Ramsay Health (the boss also announced he would step down), Iluka, Flight Centre and Ardent Leisure.
Sky Network TV is the morning's biggest casualty, but not on profit numbers. The company told the exchange this morning its proposed merger with Vodaphone's NZ business has been rejected by the competition regulator.
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The Aussie dollar pushed above 0.77 US cents overnight and in keeping with overall target of US78c in the coming weeks. This strength coming from underlying support in the commodities market looks to be holding even as iron ore overnight consolidated at $US94.30/tonne.
Traders will be watching reports that Trumps phenomenal tax plans may benefit Rio Tinto and BHP, both stocks have been upgraded to a buy from a hold by many analysts. With the 60 per cent rise in iron ore since last September these two companies have significant potential to continue the already established primary up trend with the broader commodities markets providing strength.
Casino giant Crown Resorts has reported a 9.1 per cent fall in "normalised" net profit to $191.3 million, pulled down by a 45.3 per cent drop in Australian VIP revenue following the arrest of 18 Crown staff by Chinese officials.
Crown will pay a special dividend of 83¢ following the sale of part of its stake in Macau-focused Melco Entertainment.
However the company announced it had changed its dividend policy and will now pay 60¢ a year, subject to its financial performance. Last year the company's full year dividend was 72.5¢.
The company will pay an interim dividend of 30¢, compared to last year's interim payout of 33¢.
Net profit was $359.1 million for the six months to December 31, up 75 per cent, boosted by the sales of stakes in resorts in Macau and Las Vegas.
Listed real estate group McGrath has reported a 72 per cent dive in half-year pro-forma profit to $2.4 million, blaming challenging market conditions and low listings and sales, consistent with a warning issued last month.
Statutory net profit for the company, which listed in December 2015, was up from $400,000 to $2.7 million for the six months to December 31, while pro-forma revenue fell 11 per cent to $66.9 million.
McGrath declared a fully franked dividend of 1¢ a share.
The high-profile agency last month warned that "unprecedented low volumes of listings" it highlighted at November's annual shareholder meeting had shown no sign of improving and said analysts' estimates of its full-year profit outlook were too optimistic.
Bell Potter and JPMorgan were joint lead managers of McGrath's float, which had an offer price of $2.10.
However, the stock never reached those heights, peaking at $1.89 in the days after it listed. Following an earnings downgrade by the company in April due to falling home sale listings, the share price plunged 30 per cent in one day to 90¢.
Bell Potter said in December it was still unclear if and when a rebound would occur and if some structural reform was required, such as lower stamp duty.
"We now forecast 2017 earnings ... [EBITDA] of $20.9 million," the broker said.
The cuts to profit forecasts came a week after McGrath held its maiden annual shareholder meeting in November, where chairwoman Cass O'Connor said the market in Sydney was very poor.
"It was as though every vendor woke up in the new year and made a resolution not to sell," she said.
In August, John McGrath, dubbed "Mr Sydney Real Estate", stepped down as chief executive of the group he founded in 1988. He is now an executive director with Cameron Judson, the new chief executive.
Over the course of its first year as a listed group, the company has lost a number of its high-profile agents, although the McGrath Equity Incentive Plan, is aimed at attracting and hold the real estate talent needed to grow the business.
European bond markets and the euro have been shaken up by polls showing the French presidential race is tightening.
The gap between short-dated German and US government bond yields stood at its widest in nearly 17 years overnight as the former fell to record lows and the latter nudged up in anticipation of rate increase signals.
German two-year yields dropped to minus 0.92 per cent, pulling the country's 10-year yields to a five-week low of 0.24 per cent. Analysts said jitters around upcoming French elections have stoked demand for an asset seen as one of the safest in the eurozone.
"It all seems to be linked with the French political woes," said Aberdeen Asset Management manager Patrick O'Donnell, who described the sense of an "internal FX trade" in Europe and the haven status of German assets.
"The [German] front end is the safest place to be," he added. "If redenomination risk were to reappear, then the short-dated maturities of France and Spain would be the ones that would come under pressure."
Bottlenecks caused by the European Central Bank's bond-buying program and upcoming regulatory changes have amplified the decline in the yields, which move inversely to prices.
US two-year yields have meanwhile been sneaking higher in recent days, reaching 1.24 per cent - within sight of a seven-year high breached at the end of 2016 - as investors start to price in an outside chance the Federal Reserve will raise interest rates next month.
The US yield reached some 212 basis points above its German equivalent, the biggest gap since early 2000.
Meanwhile, the euro fell below $US1.05 for the first time in six weeks, hit by a combination of concern over France's presidential election campaign and the growing gap between core eurozone interest rates and the US equivalents.
"Everybody has learned lessons from last year's big surprises. People probably don't want to take big risks. The euro could face further pressure given there's still time before the election," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.
The first round of the French Presidential election is scheduled on April 23, with the run-off between the top two contenders on May 7. Far-right leader Marine Le Pen, who has vowed to take France out of the eurozone, is leading the polls for the first round, but is still lagging in second-round polls.
French bonds meanwhile received a boost from the latest twists in the presidential race.
Centrist Francois Bayrou said overnight he was offering an alliance with independent candidate Emmanuel Macron, a move that could give the former investment banker a much-needed boost to reach the runoff in May's presidential vote.
The news helped ease concerns about the strong showing of far-right, eurosceptic Marine Le Pen, who is expected to make it through to the second round.
France's 10-year bond yield was down 7 basis points in late trade at 1.01 per cent, narrowing the gap over German peers to 74 bps. The French/German yield spread had widened to around 84 bps earlier this week - its widest since late 2012.
"Paranoid fears about the outcome of the French election continue to grow, with the recent price action suggesting some panic flight to quality," said Societe Generale global strategist Kit Juckes.
Ramsay Health Care boss Chris Rex will step down from the nation's largest private hospitals operator after 22 years with the company.
Mr Rex flagged his retirement while delivering an upgrade to full-year earnings guidance, and now expects 12 per cent to 14 per cent core net profit and core earnings per share growth from 10 per cent to 12 per cent previously for the 2017 fiscal year.
"It has been a fantastic 22 years, nine as CEO, and I want to leave while I'm energetic and give someone the opportunity to take the company forward for the next exciting stage of growth," Mr Rex told The AFR.
A search is under way being lead by chairman Michael Siddle, who is using an external search firm to help find a new head. Mr Rex will stay on "as long as it takes" to find a replacement. It is believed both internal and external candidates are being considered.
Under Mr Rex's tenure the company's value has grown from $1.8 billion to nearly $14.5 billion.
Mr Rex flagged his retirement as Ramsay on posted group half year results, where revenue was up 3.5 per cent to $4.3 billion, while net profit climbed 13.8 per cent to $255.9 million.
Australian hospitals and pharmacy revenue grew 8.8 per cent $2.4 billion. Australian EBIT climbed a strong 15 per cent $348.1 million.
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