Australian 10-year bond yield hits lowest in 2-1/2 year low on growing angst over trade war

Australian government bonds gained across the curve Friday on growing angst over trade war between two biggest economies of the world. This was largely driven by the firmness in the U.S. Treasuries, which saw considerable upward pressure on a flight to safety bid as markets continued to wrestle with geopolitical tensions.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 2 basis points to 2.670 percent, the yield on the long-term 30-year note slid 3 basis points to 3.248 percent and the yield on short-term 2-year down 1 basis point to 2.050 percent by 03:00 GMT.

The U.S. Treasuries gained heavily overnight following an announcement of tariffs on Chinese imports, this time in the form of more trade barriers as President Trump announced USD50 billion in tariffs on Chinese imports as a penalty for US intellectual property theft that once again threaten to impact trade and the global economy in general. This saw the 10-year Note yield record its largest single-day decline since September 2017, breaking below the 2.80 percent mark.

Some of this gain was ultimately undermined following the news that the U.S. House had sufficient votes to pass the USD1.3 billion omnibus spending bill that would avert another government shutdown. Given what appears to be a budding trade war, ignoring how administration officials may wish to characterize it, we anticipate markets will remain on edge for the time being as retaliatory steps are taken by foreign governments, including the previously announced steel and aluminium tariffs.

Markets now look ahead to a greater flow of data to finish off the week on Friday, highlighted by durable goods orders and new home sales. However, we anticipate continued focus will remain on international development and how they may impact domestic goods producers further down the product chain.

Meanwhile, the S&P/ASX 200 index traded 0.42 percent lower at 5,803.5 by 03:00 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 6.53 (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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