Australian 10-year yield hits all-time low after Fed strongly hints at further rate cuts in 2019

Australian 10-year government bond yield hit an all-time low during Asian session Thursday, tracking a breach of key psychological level in the United States counterpart, which fell below the 2 percent level for the first time since November 2016.

This came after the Federal Reserve dropped the word “patient” from its monetary policy statement, a signal interpreted by many as a hint towards further policy rate cuts this year.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, plunged 5-1/2 basis points to 1.293 percent, the yield on the long-term 30-year bond also plummeted 5-1/2 basis points to 1.964 percent and the yield on short-term 2-year also slumped 5-1/2 basis points to 0.934 percent by 05:10GMT.

The Fed managed to pull off a hat trick in keeping policy rates unchanged but sounding sufficiently dovish to satisfy market doves. Fed chair Powell opined that “my colleagues and I have one overarching goal, to sustain the economic expansion” and the trade war has “turned to greater uncertainty” with many Fed officials now seeing that “the case for somewhat more accommodative policy has strengthened," OCBC Treasury Research reported.

Powell also noted that “the law is clear that I have a four-year term and I fully intend to serve it”. Notably, there was one dissenter Bullard who preferred to cut by 25bps. Wall Street rose while the 10-year UST bond yield rallied to 2.03 percent, with markets now eyeing the possibility of a 25bp rate cut as early as the July FOMC meeting and discounting between 50-75bps of cuts by year-end, the report added.

Meanwhile, the S&P/ASX 200 index remained 0.17 percent higher at 6,601.50 by 05:15GMT, while at 05:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 8.80 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex