Australian bonds gain on higher unemployment rate; focus on BoE policy decision

The Australian government bonds gained on Thursday after data showed that the country’s unemployment rate ticked higher in June. Also, investors remained cautious ahead of BoE policy decision and sought refuge in safe-haven assets amid troubled global markets.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price fell nearly 6 basis points to 1.930 percent and the yield on short-term 2-year note dipped 2-1/2 basis points to 1.623 percent by 05:00 GMT.

Australian unemployment rate surged to 5.8 percent in June, in the line of market consensus of 5.8 percent, as compared to 5.7 percent in May. Similarly, June employment change rose to 7,900, lower than the markets expectation for 10,000, from 17,900 in May. Apart from this, the full-time employment change rose to 38,400, as compared to previous 2,500 in May. Also, part-time employment change fell 30,600, from 16,600, revised from 17,900 in May. Participation rate rose 64.9 percent, against investor’s expectations for 64.8 percent, from prior 64.8 percent.

Moreover, the Bank of England is also expected to ease interest rates in its monetary policy meeting scheduled to be held on July 14, in an attempt to ease the growing anxiety over the possible breakdown after the Brexit outcome.

The UK as it could herald the first BoE Bank Rate cut since Feb 2009. There is a low probability, but non-negligible risk, that the central bank also resumes its programme of asset purchases, financed through reserves issuance, although this is more likely in August. So it is likely that we see a 25 basis points rate cut on Thursday that takes the Bank Rate down to a record low 0.25 percent.

In addition, the Melbourne Institute’s survey of consumer inflation expectations rose to 3.7 percent in July, as compared to 3.5 percent in June. Investors will remain keen to focus on the RBA's second-quarter inflation report, which is expected to get released at the end of this month.

Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading up 0.09 percent, or 5 points, at 5,362.5 by 05:00 GMT.