Australian bonds gain on fear of slower pace of Fed tightening next year

Australian government bonds gained across the curve during Asian session on Thursday on news reports that the Fed could pause its rate tightening cycle next year. But the yields on the U.S. Treasuries were relatively unchanged due to Thanksgiving holiday.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 4 basis points to 2.663 percent, the yield on the long-term 30-year bond also dipped 4 basis points to 3.184 percent and the yield on short-term 2-year down 2 basis points to 2.042 percent by 04:20GMT.

 “Yields on the U.S. Treasuries were relatively unchanged. The U.S. 2-year yields edged up 1 basis point to 2.81 percent. The U.S. 10-year yields were steady at 3.06 percent. Market pricing for a Fed rate hike in December continues to be elevated at above 70 percent chance, although odds of hikes further out have pared back,” noted St.George Bank.

The risk-averse mood mostly reversed overnight. News reports that the Fed could pause its rate tightening cycle next year may have played a part behind the lift in sentiment, but trading would have been thin ahead of the U.S. Thanksgiving holiday. The U.S. stocks rose, while oil prices rebounded. The US dollar weakened, the bank added.

It is a quiet day ahead domestically. No data or RBA activity today.

In the global economy, the European Union started the process of rejecting Italy’s budget and there was plenty of confusion around Italy’s official response to that. EU said Italy’s budget was in serious non-compliance. The EU took the first step to imposing penalties and fines on Italy over the budget. However, Italian yields fell sharply on news that Salvini may be open to spending revisions to avoid punishment, the ANZ Bank added.

“Global equities are in the green and the USD is on the back foot. Commodities have seen a relief rally. European shares led the rebound with gains of 1-1.5 percent across major bourses. US shares climbed 0.6-1.5 percent, led by the battered tech and energy sectors. Yields in Italy fell on news that it may alter its budget after the EU took the first steps to deny its budget, raising the threat of fine impositions, although the official Italian response was confusing. Gold rose 0.5 percent,” noted economists at ANZ.

Meanwhile, the S&P/ASX 200 index traded 0.51 percent higher at 5,688.5 by 04:30 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at -96.63 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex