Australian bonds slump on U.S.-China trade talk optimism; markets await U.S. Q4 GDP data

Australian government bond slumped during Asian trading session Thursday tracking a similar movement in the United States’ counterpart as investors remain optimistic on U.S.-China trade talk despite Lighthizer highlighted the challenge of trade negotiations.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 4 basis points to 2.105 percent, the yield on the long-term 30-year bond jumped 3 basis points to trade at 2.675 percent and the yield on short-term 2-year climbed 1/2 basis point to 1.713 percent by 03:30GMT.

“A large amount of corporate issuance pushed up U.S. Treasury yields overnight. Today, the focus is on CAPEX. Any weakness will soften the growth outlook and lead to a rally in rates on growing expectations of a cut from the RBA,” noted ANZ Bank.

“Despite poor U.S. trade data, bond yields pushed higher, with the yield on the U.S. 10-year note rising 4 basis points to 2.68 percent.”

Market sentiment weakened, which was attributed to comments by U.S. trade representative Lighthizer who highlighted the challenge of trade negotiations between the U.S. and China and that it would “go on for a long, long time”.

Additionally, Trump’s ex-lawyer Cohen provided damaging testimony in regards to Trump. U.S. stocks fell and the Australian dollar weakened, although bond yields were higher, St.George Bank reported.

Morgan Stanley in its recent report noted that “after a long delay on the back of the government shutdown, the Bureau of Economic Analysis (BEA) will finally release the initial report on fourth quarter GDP on Thursday, February 28. This release will replace the two previously scheduled releases 4Q GDP—the advance estimate originally set for January 30 and the second estimate that would normally be released tomorrow.”

“Our latest tracking suggests that GDP grew at a 2.5 percent annualized rate in the fourth quarter, moderating notably from 3.4 percent growth in 3Q. Our 2.5 percent forecast for 4Q GDP growth compares to consensus at 2.2 percent. 4Q GDP growth in line with our forecast would bring full year growth to 3.1 percent on a 4Q/4Q basis, matching our forecast in our year-ahead outlook,” Morgan Stanley added.

Meanwhile, the S&P/ASX 200 index traded tad higher at 6,135.50 by 03:50GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -41.90 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex