Australian 10-year bond yield hovers around historic low on fear that a recession is around the corner

Australian government bonds rallied during Asian trading session Wednesday as investors moved towards safe-haven buying on fear that the partly inverted U.S. yield curve would bring the much-anticipated recession closer.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell to its record low of 1.75 percent on Tuesday, now floating 3-1/2 basis points lower at 1.773 percent, the yield on the long-term 30-year bond also plunged 3 basis points to 2.422 percent and the yield on short-term 2-year too traded 2-1/2 basis points lower at 1.465 percent by 03:30GMT.

“The U.S/ yield curve has inverted raising fears of a recession. Although its track record as a predictor is good, a number of other indicators suggest that there is still life left in this cycle,” noted ANZ Bank.

“In recent times. 10-year yields have fallen sharply, resulting in the 10-year–3- month yield curve inverting. This indicator is said to be the bellwether for predicting recessions.”

However, the recent decline in the U.S. bond yields was arrested as risk appetites improved, pushing yields slightly higher. The yield on the 10-year U.S. government bond yield lifted 2 basis point to 2.42 percent. The yield on the 2-year US government bond rose 2 basis point to 2.27 percent, said OCBC Bank.

The Fed Funds futures market is now fully pricing in a possible rate cut by year-end, and we expect that the 10-year U.S. Treasury yield will make a run for the 2.3 percent handle amid month/quarter-end re-positioning flows.

“In addition, watch for a series of “indicative” votes by the UK Parliament today on next steps for Brexit. For today’s economic data calendar, watch for US’ Jan trade data and China’s industrial productions for Feb. ECB’s Nowotny, Lautenschlaeger, Praet, Mersch, de Guindos and Villeroy are also dominating the airwaves today,” OCBC added.

Meanwhile, the S&P/ASX 200 index traded 0.37 percent lower at 6,104.50 by 03:35GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 28.75 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex