The benchmark 10-year Australian government bond yield crashed to its lowest level in 141 years on Monday on expectations that more cuts to official interest rates are coming.
A plunge in government bond yields will crunch retirement savers and deepen a downward spiral in consumer spending, the head of the federal government's financial system inquiry, David Murray, said.
The easy-money policies since the global financial crisis have had the effect of taking money from savers and giving it to governments, and the benefit to government comes through in a low bond yield," Mr Murray said.
He urged the federal government not to use cheap credit to ramp up debt for infrastructure - which some prominent economists say would be a smart way to exploit low rates.
"I disagree with the suggestion that they should borrow a lot more because Australia is already heavily-borrowed for its circumstances," Mr Murray said.
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Mr Murray said the Reserve Bank's policies were having the effect of reducing the cost of servicing Canberra's debt.
"Australia has pretty much had to follow other central banks because there is a currency war," he said.
"We don't get the benefit of the currency realignment, which is why the RBA has rates so low.
He said this would have "a significant impact on retirees, which constrains their income and consumption.
"At the same time we have weakening and low wages, and falling hours worked in the economy, which effects consumption as well," he said.
"It's a bind we've got to get through somehow."
http://www.afr.com/markets/market-d...-yield-hits-lowest-since-1875-20160516-gowgsh
