Australian bonds jump tracking U.S. peer after Fed leaves interest rates unchanged

The Australian bonds jumped during Asian session Thursday, tracking a similar movement in the U.S. Treasuries after the Federal Reserve kept the fed funds rate unchanged in a range between 1.5-1.75 percent at the conclusion of its monetary policy meeting late Wednesday.

This safe-haven demand from investors remained intact as China and its global peers struggle to tackle the deadly coronavirus that has challenged the lives of millions of people, with many countries being put on high alert before the virus creeps into.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, plunged 7-1/2 basis points to 0.955 percent, the yield on the long-term 30-year bond slumped 8 basis points to 1.558 percent and the yield on short-term 2-year lost 6 basis points to trade at 0.659 percent by 04:10GMT.

Whilst the coronavirus count continued to climb and in China alone has surpassed the SARS numbers (latest at 7,711 this morning) with at least 170 deaths reported, the World Health Organisation’s Emergency Committee will meet today to consider declaring the coronavirus a public health emergency of international concern, OCBC Treasury Research reported.

The Fed hiked the IOER by 5bps to 1.6 percent but left its policy settings static with the Fed Funds rate at 1.5-1.75 percent as widely expected. The overall Fed tone suggests that the pause on rates will hold at least for 1H 2020, the report added.

Wall Street treaded water overnight with the S&P500 slipping 0.09 percent, whereas UST bonds rallied to with the 10-year yield falling to 1.58 percent (lowest since early October 2019) and narrowing the 2-10 year spread to 17bps amid the flight to safety with the coronavirus outbreak, OCBC further noted in the report.

Meanwhile, the S&P/ASX 200 index traded tad -0.32 percent down at 6,937.50 by 04:15GMT.