Australian 10-year bond yield hits 3-week low on geopolitical fears, firmness in U.S. Treasuries

Australian government bonds rallied on start of the week Monday following weekend news regarding U.S.-North Korea relations, which did not appear to have a big impact on most markets.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 5 basis points to 2.745 percent, the yield on the long-term 30-year Note also dipped 2-1/2 basis points to 3.273 percent and the yield on short-term 2-year down 3-1/2 basis points to 1.979 percent by 03:30 GMT.

In the United States, Treasuries saw recent upward pressure sustained during a relatively quiet session ahead of the long holiday-weekend (U.S. markets closed Monday in observance of Memorial Day). On the data front, markets receive a mixed bag of data, highlighted by weaker than expected durable goods orders (though contained solid underlying fundamentals and upward pressure in core orders/shipments) and University of Michigan consumer sentiment (revised lower to 98.0, from 98.8). With respect to Fed speakers, markets received a handful of comments of only modest significance.

In broader terms, bigger changes are in store for the Fed (in some respect) as Fed Chair Powell indicated that forward guidance will take a smaller role in the conduct of monetary policy in the future. Although it could suggest a shift, it is not entirely clear just how grand that will actually be, particularly as that could imply curtailing a number of things (or very few at all).

In terms of geopolitical tensions, US President Trump has suggested communication channels are back up with North Korea following the cancellation of the June summit with Kim Jong un. How significant this development is clearly remains to be seen, particularly given how quickly recently established good will crumbled in the face of hostile statements. Markets now look ahead to a greater flow of data in the week ahead, highlighted by the May employment report on Friday.

Geopolitical developments over the weekend, including a meeting between the U.S. and North Korean delegations on Sunday, didn't appear to have a big impact on most markets. The talks on Sunday followed a Saturday meeting between South Korean President Moon Jae-in and North Korean leader Kim Jong Un. That, in turn, came after U.S. President Donald Trump said he canceled a planned meeting with Kim in June last Thursday, although the White House later said it was still making preparations "should the summit take place," CNBC reported.

Meanwhile, the S&P/ASX 200 index traded 0.05 percent lower at 6,000.5 by 03:45 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 50.60 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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