Australian bonds gain on short covering; trade tensions persist

Australian government bonds gained on last trading day of the week on Friday as investors covered previous short positions amid persisting trade tensions.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 3 basis points to 2.666 percent, the yield on the long-term 30-year Note dipped 3-1/2 basis points to 3.138 percent and the yield on short-term 2-year down 1-1/2 basis point to 2.023 percent by 03:40 GMT.

In the United States, the Treasuries traded narrowly mixed ahead of the Q2 GDP data, which is expected to jump 4.1 percent, up from Q1’s 2 percent. At the time of writing, the U.S. 10-year Note yield rose 1/2 basis point to 2.980 percent.

“US bond yields traded a tight range overnight. The US 10-year bond yield was steady at the close while the 2-year bond yield edged up 1 basis point,” noted St.George Bank in its morning report.

The bonds prices remained under pressure following weak producer price data, which rose just 0.3 percent in Q2, down from first quarter growth of 0.5 percent. That was also lower than market consensus of 0.4 percent increase. Along with headline CPI inflation, now even wholesale inflation is coming weak, keeping the Australian central bank on hold.

On the other hand, it is worth noting that the RBA's next meeting is scheduled for August 7, where the board members are expected to keep its interest rate unchanged at 1.50 percent.

Meanwhile, the S&P/ASX 200 index traded 0.18 percent higher at 6,236.5 by 04:05GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -10.63 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyinde