Australian bonds gain as FOMC Dec minutes highlight inflation concerns

Australian government bonds gained on Thursday as FOMC December meeting minutes showed that stubbornly weak inflation could slow the pace of interest rate hikes in 2018.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 3 basis points to 2.664 percent, the yield on the long-term 30-year note dipped 4 basis points to 3.362 percent and the yield on short-term 2-year down 2 basis point to 1.973 percent by 03:40 GMT.

From the United States, Treasuries were little changed overnight, finding only modest downward pressure in the short-end of the curve following the release of minutes from the 12-13 December FOMC meeting which indicated broad support for continued gradual tightening in the months ahead.

The Minutes noted that the Fed's preferred measure of inflation remained below 2 percent in October and was lower than early in the year, meaning that interest rates are likely to remain low in the new year. While low inflation is seen as transitory, some FOMC members were concerned "that inflation might stay below the objective for longer than they currently expected."

Markets now look ahead to a lighter flow of data on Thursday, highlighted by the ADP employment estimate, jobless claims and Markit US services PMI data, ahead of the December employment report on Friday.

Meanwhile, the S&P/ASX 200 index traded 0.46 percent lower at 6,032.5 by 03:40 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 178.17 (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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