Australian bond yields pare gains on disappointing December retail sales, RBA’s dovish stance

Australian government bond yields pared gains across the curve during Asian trading session Tuesday as retail sales were much weaker than expected in December, coupled with disappointing volumes for the quarter. Along with that, the Reserve Bank of Australia maintained dovish stance amid concerns over Chinese growth and trade war.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose about 2 basis points to 2.24 percent, the yield on the long-term 30-year bond also climbed 2 basis points to 2.77 percent and the yield on short-term 2-year jumped 1-1/2 basis points to 1.85 percent by 03:40 GMT.

Australia retail sales fell -0.4 percent m/m in December, considerably weaker than the market expectations, down from 0.5 percent growth seen in November. In annual terms, sales growth was steady at 2.8 percent.

“Low growth in volumes points to another soft outcome for consumer spending in Q4. The RBA is likely to be disappointed with the weakness in retail sales, given its relatively upbeat view on the consumer spending outlook,” noted economists at ANZ.

Overnight, investors remained upbeat overnight, reflected in the gains in most major global share markets and rise in U.S. bond yields. The U.S. dollar was also firmer.

“The U.S. 10-year treasury yield rose from 2.68 percent to 2.72 percent and the U.S. 2-year yield rose 3 basis points to 2.54 percent. Futures markets continued to price little chance of any further Fed rate hikes in this cycle,” noted St.George Bank.

On the other hand, the RBA kept the official cash rate unchanged at 1.5 percent, an announcement that was expected by every analyst surveyed by Reuters. The central bank said low rates supporting economy and some signs of slowdown in global trade, partly stemming from trade tensions. It also added Chinese growth has continued to slow, which is a major risk for the Australian economy.

Asian markets may see muted trading today as Singapore and other Asian markets will be closed for Chinese New Year holidays this week.

Meanwhile, the S&P/ASX 200 index traded 1.34 percent higher at 5,954.50 by 03:55 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -5.11 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex