Australian bonds continue to slump on profit-booking, investors eye RBA’s policy decision

The Australian bonds continued to slump Friday as investors cashed in profits on the last day of the week ahead of the Reserve Bank of Australia’s (RBA) first monetary policy of 2017, scheduled to be held on February 7 for further direction in the debt market.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose nearly 1 basis point to 2.77 percent, the yield on 15-year note jumped 1-1/2 basis points to 3.25 percent and the yield on short-term 2-year also surged 1-1/2 basis points to 1.84 percent by 04:30 GMT.

The central bank is likely to remain on hold at Tuesday’s meeting, keeping the interest rate at a historic low of 1.50 percent despite ongoing global uncertainties. According to the minutes from December’s policy meeting, board members expressed concern over the need to balance economic and financial risks, besides, maintaining stability, in an attempt to help push the ailing economy.

There is increasing note of evidence that Australia is at a positive transition point for nominal growth, inflation and wages. Also, the unemployment rate has remained unchanged for nine consecutive months (trend basis) and the improvement in Q4 full-time employment will alleviate RBA’s concern.

If downside tail risks continue to subside and broader momentum improves as expected, RBA's next policy move will be 25 basis points hike in the first-quarter of 2018.

Meanwhile, the ASX 200 index traded 0.75 percent lower at 5,564.50 percent at 04:55GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 146.66 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex