Australian bonds ease losses in muted trading after U.S. CPI inflation trigger December rate hike hopes

The Australian bonds continued to incur losses, albeit at a slower pace after U.S. Treasury yields rose in the overnight session, with the two-year yield hitting a seven-week peak as domestic consumer prices rose, rekindling bets that the Federal Reserve would raise interest rates for the third time this year.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 1-1/2 basis points to 2.75 percent, the yield on the 15-year note climbed 1 basis point to 3.05 percent and the yield on short-term 2-year traded 2 basis points higher at 1.95 percent by 03:20GMT.

The consumer price index, the rose 0.4 percent in August, faster than the 0.3 percent increase forecast among analysts polled by Reuters. That lifted the CPI's year-over-year increase to 1.9 percent from 1.7 percent in July. But the so-called core CPI, which excludes volatile energy and food prices, rose 1.7 percent on a 12-month basis and remained stuck below the Fed's 2 percent goal for underlying inflation.

Interest rates futures implied traders saw more than a 50 percent chance of rate increase in December, the highest since July, based on data from CME Group's FedWatch program. Fed policymakers are scheduled to meet on September 19-20 and are expected to announce their plan to reduce the central bank's USD4.2 trillion holdings of Treasuries and mortgage-backed securities.

Meanwhile, the S&P/ASX 200 index slumped 0.91 percent to 5,693.50 by 03:25 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -111.34 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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