Australian 10-year bond yield hits new low on hopes of RBA rate cut next week

Australian government bonds gained sharply during Asian session on Friday on hopes that the Reserve Bank of Australia will cut interest rate on June 4. Market is pricing a 25 basis points rate, the probability attached to a cut remained at 100 percent.

Ongoing trade war tensions between U.S.-China kept risk aversion heightened. Shares and bond yields declined.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell over 5-1/2 basis points to 1.470 percent, the yield on the long-term 30-year bond dipped over 4-1/5 basis points to 2.155 percent and the yield on short-term 2-year down 2-1/2 basis points to 1.128 percent by 04:00GMT.

“We and the market will be shocked if the RBA doesn’t cut in June. Of more interest will be any clues it might provide about action beyond that. If the post-board meeting statement doesn’t provide any clues, attention will switch to the Governor’s speech that evening,” ANZ noted.

The U.S. 10-year treasury yields fell by 2 basis points and 2-year yields fell by just 1 basis point to 2.07 percent. The chance of a Fed rate cut by December, implied by interest-rate futures, increased after Clarida’s remarks, who said the central bank is prepared to ease policy if it sees mounting risks to its outlook.

“Global trade tensions may continue to circulate into the end of the week after the U.S. administration levied additional tariffs on imports from Mexico. Expect the U.S. dollar to retain the upper hand and cyclical assets to remain under negative pressure while global bond yields may continue to reflect heightened uncertainty,” OCBC noted.

“On the Sino-U.S. front, note that China’s stance has increasingly hardened in recent weeks.”

Meanwhile, the S&P/ASX 200 index fell 0.22 percent to 6,397.5 by 04:10GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 5.33 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex