Australian 10-year bond yield rebounds after falling below RBA’s 1.50 pct cash rate; market pricing 25 bps cut in June

Australian government bond yields rebounded during Asian session on Thursday after falling below the Reserve Bank of Australia’s (RBA) cash rate of 1.5 percent. However the rise in yields will be limited as markets is pricing a 25 basis points rate cut in the central bank’s June monetary policy meeting.

Ongoing trade war tensions between the 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, rose 4-1/2 basis points to 1.536 percent, the yield on the long-term 30-year bond gained over 4 basis points to 2.197 percent and the yield on short-term 2-year up 3-1/2 basis points to 1.149 percent by 04:00GMT.

“With global risk appetite continuing to ebb, Wall Street retreated further to a 12-week low overnight and the 10-year U.S. Treasury bond yield tumbled to 2.21 percent (lowest since Sep17), prompting traders to see the key 2 percent handle for the first time since late 2016 amid increased speculation of Fed rate cuts whilst the 3-month to 10-year yield curve inverted further to -13bps (most since 2007),” OCBC noted.

The U.S. 10-year yields slid, although retraced later on to be down 1 basis point to 2.26 percent. Yields are at their lowest since late 2017. Treasuries rallied at the front end of the curve, with markets now expecting three Fed rate cuts by the end of 2020. Today’s Australian data is unlikely to have a significant impact on local rates markets.

“For the week ahead, global risk appetite is likely to continue its downward trend with investors taking on protective positions. Global markets will be looking for a silver lining from the U.S.-Japan’s ongoing trade talks. The financial market could possibly see a rebound in the unlikely event that U.S. and Chinese officials mange to come to a compromise on trade issues,” OCBC added.

Meanwhile, the S&P/ASX 200 index remained nearly steady at 6,399.0 by 04:10GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 170.63 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex