Australian bonds flat on safe-haven demand after Iran claims attack on Iraq-based US troops

The Australian bonds gained during Asian session Wednesday as demand for safe-haven assets rose after Iran claimed to have attacked Iran where United States troops were based, which in turn weighed on stock prices, thus providing support to the yellow metal.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, hovered around 1.188 percent, the yield on the long-term 30-year bond traded flat at 1.817 percent and the yield on short-term 2-year too steadied around 0.776 percent by 05:00GMT.

Iran said that it has attacked an Iraqi base housing US troops. S&P futures are down 1 percent, and gold surged by 1.5 percent to above USD1600/oz for the first time since April 2013 on the news. Market sentiment, which has been previously stabilizing, is softening on the news, OCBC Treasury Research reported.

Oil prices, which had pulled back somewhat before over the last two days, are likely to see upticks now, as market becomes increasingly concerned that the latest Iranian attack will set off another round of US counter-attack, the report added.

Oil market had been relatively sanguine before that, as much as tensions between the two countries remain, oil supply from the region had not been affected yet, but this morning's news may change that assumption quickly, depending on the speed of the escalation.

WTI crude futures have jumped more than 3 percent to above USD65/barrel level. With a quiet data day ahead in both Asia and US, market will have little else to focus on, apart from tracking the ongoing Middle East crisis, OCBC further noted in the report.

Meanwhile, the S&P/ASX 200 index traded tad down at 6,756.50 by 05:10GMT.