Australian bonds gain with U.S. Treasuries, lingering trade war concerns support

Australian government bonds gained on last trading day of the week Friday with the U.S. Treasuries amid a backdrop of lingering concerns related to escalating trade tensions between the US and China.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 3 basis points to 2.655 percent, the yield on the long-term 30-year Note dipped 4-1/2 basis points to 3.153 percent and the yield on short-term 2-year down 3 basis points to 2.044 percent by 03:30 GMT.

In the United States, Treasuries held tighter ranges on Thursday during a relatively quiet session as markets absorbed a mixed bag of economic data amidst a backdrop of lingering concerns related to escalating trade tensions between the US and China. However, as to be expected, these releases were largely background fodder with focus continuing to be squarely on continued trade conflict between the US and China, amplifying uncertainty and magnifying concern for economic prospects following a more upbeat to 2018 following the passage of expansionary fiscal measures.

Providing some hope for the situation is rumors of backchannel discussions between US and China officials that could potentially limit the scope of tariffs due to go into effect in the coming weeks. Markets now look ahead to a relatively quiet end of the week on Friday (in terms of data), highlighted largely by Markit US manufacturing/services PMI data.

Bonds markets witnessed heavy buying after the world’s second-largest economy, China announced at the weekend that it would retaliate against new US tariffs on USD50 billion in Chinese imports that will go into effect within days, taking the world’s two largest economies to the brink of a full-scale trade war.

Also, U.S. President Donald Trump threatened on Monday to impose a 10 percent tariff on $200 billion of Chinese goods, escalating a tit-for-tat trade war with Beijing.

On the other hand, figures from the Australian Bureau of Statistics (ABS) released last week showed Australian employment rose by lower-than-expected in May with gains led wholly by part-time work while the jobless rate ticked down to its lowest since November, a mixed outcome that points to tepid wages growth. The unemployment rate eased to 5.4 percent from 5.6 percent in April. It has remained between 5.4 percent and 5.6 percent for almost a year now.

Meanwhile, the S&P/ASX 200 index traded 0.29 percent higher at 6,169.5 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -20.35 (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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