Australian bonds gain amid renewed bout of risk aversion; 10-year yield dips to 18-month low

Australian bonds gained across the curve during Asian session on Monday as risk appetites softened further amid ongoing tensions regarding the Huawei issue and disappointing U.S. jobs data on Friday night. Investors risk sentiment was weighed down after the arrest of Huawei’s CFO raised concerns of inflaming U.S.-China tensions.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 2-1/2 basis points to 2.430 percent (lowest since June 2017), the yield on the long-term 30-year bond also dipped 2-1/2 basis points to 2.962 percent and the yield on short-term 3-year down 1-1/2 basis points to 1.919 percent by 03:30GMT.

On Friday, the Wall Street fell and U.S. Treasury yields slumped. The oil price rose after major producers agreed to a larger than expected production cut. The Dow fell 2.2 percent, the S&P 500 lost 2.3 percent and the Nasdaq plunged 3.1 percent for the session.

“The U.S. government bond yields fell as stock market losses and risk aversion enhanced the appeal of safe-haven government debt. The yield on the 10-year U.S. government bond fell from 2.89-2.85 percent. The yield on the 2-year US government bond fell from 2.76-2.71 percent,” noted St.George Bank.

The ANZ noted that the Australian dollar closed weaker, as poor risk appetite once again dominated price action. With few domestic offsets this week, the AUD is likely to remain at the mercy of risk.

“Rates markets once again shifted lower, this time as key U.S. labour market data softened. Perhaps in a sign that the world has changed, an undershoot in US non-farm payrolls was seen as a good result, in that it is less likely to make the Fed more hawkish. Wage growth also missed. The U.S. labour market is clearly losing momentum – initial jobless claims are telling the same story. Investment spending has been disappointing, meaning that GDP growth, as measured by capital and labour inputs, has softened. The pressure will remain on Fed speakers to evolve their tone,” ANZ economists noted.

“Look for yields to hold the lows this morning, before some consolidation.”

Meanwhile, the S&P/ASX 200 index traded 0.77 percent lower at 5,565.5 by 03:40 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -111.90 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex