Why is this happening? Well, it looks like the market is starting to anticipate a cut in the RBA target rate. To be fair, the market is not yet convinced about a rate cut, but in the last couple of days sentiment has moved a little towards believing a cut more likely than earlier thought. If I was to translate the prospect for a cut into probability terms, it looks like we are sitting at around a one third chance of a rate cut.
However, also to be fair, this growing spread is not a reliable predictor of whether or not the RBA will cut its target rate. Last month (and numerous times prior to that) the market anticipated in vain a cut to the target rate.
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