Australia bonds gain amid escalating trade war tensions; FOMC decision in focus

Australian government bonds gained across the curve during Asian session Wednesday following ongoing political turmoil in the U.S. and escalating trade tensions. Also, the bonds prices were partly supported by a rumoured resignation from Attorney General Rod Rosenstein.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 1 basis point to 2.751 percent, the yield on the long-term 30-year bond traded 1-1/2 basis points lower at 3.232 percent and the yield on short-term 2-year dipped 1-1/2 basis points to 2.109 percent by 03:40GMT.

U.S. President Donald Trump signed a refreshed trade deal with South Korea, despite reportedly planning to withdraw last year. Meanwhile, there is no sign of a thaw in US-China trade relations, but Trump said nothing new in his address to the UN General Assembly.

“The U.S. government bond yields increased ahead of the US Federal Reserve FOMC meeting, where it is widely expected to raise official interest rates. Soft demand at the Treasury US$38billion 5-year note auction put upward pressure on yields. The yield on the US 10-year government bond rose from 3.09-3.10 percent. The yield on the US government 2-year bond rose from 2.82-2.84 percent,” noted St.George Bank in its morning report.

Lastly, markets will now eye Wednesday’s Federal Reserve’s monetary policy statement to understand the future direction in the fed funds rate.

“Rates markets stayed defensive overnight with yields up a touch. Global supply and the FOMC meeting remain the short-term concerns for markets and we expect yields to trade a little higher from here,” noted ANZ Bank.

Meanwhile, the S&P/ASX 200 index traded nearly flat at 6,188.5 by 04:00 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -19.10 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex