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The Australian government bonds slumped Wednesday as investors moved away from safe-haven buying following hawkish comments from the Reserve Bank of Australia Assistant Governor Christopher Kent.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose more than 6 basis points to 2.73 percent (highest since January this year), the yield on 15-year note jumped 4-1/2 basis points to 3.12 percent and the yield on short-term 3-year bounced 4 basis points to 1.93 percent by 04:20 GMT.
RBA Assistant Governor Kent said the prospects for the mining States are improving as the drag from unwinding resource investment lessens and as commodity prices lift. He said that the fall in the unemployment rate from its 2015 high is likely to have overstated the extent of the improvement in the labour market.
Kent noted the central bank is expected the terms of trade to shift from the substantial headwind of recent years to a slight tail breeze providing some support to the growth of nominal demand. Kent said a key concern from US President-elect Trump is trade restrictions, although he said protectionism is more deep-seated in the world than just sentiment from Trump.
Moreover, the Australian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which is still below the Reserve Bank of Australia's target. Crude oil prices recovered on rising consensus that the OPEC will find a way to reduce production. The International benchmark Brent futures rose to $49 and West Texas Intermediate (WTI) jumped to $48.
Last week, the Reserve bank of Australia in its November meeting minutes mentioned that the underlying inflation is expected to return to normal levels over time and the Australian economy is seen growing close to potential over the next few quarters, before picking up further.
Further, the minutes repeated that a rising Australian dollar could complicate the economic transition and holding policy rate steady in November meeting was consistent with growth and inflation goals. It further mentioned that a steadier Chinese economy had reduced downside risks to the global growth outlook, while risks to global inflation outlook more balanced than for some time.
Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.99 percent higher to 5,484.5 by 04:30 GMT. While at 04:00 GMT, the FxWirePro's Hourly Australian Dollar Strength Index stood neutral at +54.17 (higher than +75 represents purely bullish trend).
