Also putting more upward pressure on bond prices, and downward pressure on yields towards historical low levels, the Reserve Bank of Australia (RBA) is likely to cut interest rates further, according to interest-rate experts.
Nomura interest-rate strategist Martin Whetton has recently lowered his forecast for 10-year Australian government bond yields to fall to a fresh 60-year low of 2.55 per cent in coming months, down from a recent 60-year low of 2.70 per cent.
Feeding into this forecast are downbeat assessments of domestic and global economic growth.
In recent times, the IMF in its World Economic Outlook has downgraded its forecast for global growth to 3.6 per cent from 3.9 per cent for 2013.
The IMF said the risk of a serious slowdown is now "alarmingly high" and "downside risks have increased." Its growth forecast for Australia's GDP growth was cut from to 3.0 per cent from 3.3 per cent.
Also this month, the RBA cut the official cash rate to 3.25 per cent from 3.5 per cent. The rate cut was accompanied by the RBA expressing concern about downside risks to global growth and softening domestic activity.
"For markets, it has been this sentiment, when looking at Chinese and broader Asian growth, that has driven the forward pricing of interest rate cuts in Australia," said Nomura's Mr Whetton.
"The Australian government bond market has also re-priced to reflect the recent change in sentiment."
According to another interest-rate forecaster, Dr Stephen J Nash, director of strategy and market development with fixed-income broker FIIG Securities, low economic growth is here to stay. As a result, bond prices will keep rallying.
"Given the underlying concerns with the Australian labour market, and the depressing impact of the Australian dollar on the Australian manufacturing sector, the RBA has now embarked on an easing bias. Typically, an easing bias is positive for bond prices, and typically supports even lower long bond rates.
"If the US long end is as cheap as we think it is, if global growth continues to stagnate, and if this global environment continues to support an RBA easing bias, interest rates are not headed high, as the 'bond bubble myth' would have you believe. Rather, longer rates will be heading lower, possibly a lot lower," he said.
Indeed, Westpac Bank is predicting the official cash rate will fall to 2.75 per cent in 2013.
"The RBA Board next meets on November 6. We expect the Board will decide to cut the overnight cash rate by a further 0.25 per cent.
"Our forecast for this cut has been in place since May this year with our forecasts around global uncertainty, softening domestic growth, a weak labour market and dormant inflation all setting the scene for another move by the RBA.
"In May we also pointed out that the overnight cash rate was unlikely to bottom out by year's end with a further cut to 2.75 per cent likely early in the New Year."
