Australian 10-year bond yield plunges to 3-week low on U.S.-China tit-for-tat trade warmongering

Australian government bonds rallied across the board on the last trading day Friday following the U.S.-China tit-for-tat trade warmongering, which is pushing investors to buy safe-haven assets in fear of full fledge trade war between the world’s two biggest economies.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 3 basis points to 2.625 percent, the yield on the long-term 30-year Note also dipped 2-1/2 basis points to 3.105 percent and the yield on short-term 2-year slumped 1-1/2 basis points to 1.993 percent by 03:30 GMT.

Following recent trade relation between the U.S. and China, investors moved to safe-haven buying on fear of full-fledged trade war. This was largely after China retaliated with additional USD16 billion tariff on U.S. imports early this week. This tariff will be active from August 23.

St.George Bank in its morning note said risk aversion and weaker-than-expected producer price inflation data pressured bond yields lower. With little sign yet of a sustained lift in inflation and ongoing trade tensions weighing on sentiment, yields are struggling to push substantially higher. Overnight, yields on U.S. 10-year bonds fell 3 basis points to 2.93 percent.

The Reserve Bank of Australia (RBA) in its August Statement on Monetary Policy noted that the June quarter inflation outcomes were in line with the forecast in the May Statement on Monetary Policy. Headline inflation was steady at 0.5 percent (seasonally adjusted) in the quarter, to be 2.1 percent over the year. Underlying inflation was also steady at 0.5 percent in the quarter and close to 2 percent over the year.

The RBA further noted that the Board has for some time been of the view that holding the cash rate steady at 1.50 percent would support the gradual progress being made on unemployment and inflation, with steady monetary policy promoting stability and confidence. Higher interest rates are likely to be appropriate at some point if the economy continues to evolve as expected. Given the gradual nature of the improvement, however, the Board does not see a strong case to adjust the cash rate in the near term.

Meanwhile, the S&P/ASX 200 index traded 0.22 percent lower at 6,236.5 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at -98.87 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex