Australian bonds narrowly mixed in subdued session; investors eye developments in global trade policies

Australian bonds traded mixed on Thursday as investors remained sidelined amid a muted trading day that is scheduled to witness data of little economic significance. However, traders will eye major developments in global trade policies.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose nearly 1 basis point to 2.572 percent, the yield on the long-term 30-year bond traded flat at 3.080 percent and the yield on short-term 2-year slumped 1-1/2 basis points to 1.999 percent by 03:20GMT.

The OCBC Bank noted in its latest report that on the US-Canada talks on NAFTA, president Trump suggested “we should know over the next two or three days”, while suggesting that he may sign the US-South Korea trade deal at the UN General Assembly meeting this month. Given the EM risk-off sentiments, Asian markets may still trade with a soft tone today. Today’s economic releases include US’ initial jobless claims, non-manufacturing ISM, factory orders, ADP employment change and Challenger job cuts, and German factory orders. Speakers include ECB’s Lautenschlaeger, Fed’s Williams and RBNZ governor Orr.

In the United States, the Treasury yields were little changed and the US 10-year yields remained steady at 2.90%, while 2-year yields held at 2.65%.

On the data front, Australia’s monthly trade surplus narrowed in July, but less than we expected even when accounting for the upward revision for June’s surplus.  Trade balance narrowed to AUD1.551 billion in July. June’s surplus was revised up to AUD1.973 billion, from AUD1.873 billion. The deterioration reflects exports falling 1 percent m/m, while imports rose 0.1 percent.

Better-than-expected domestic Q2 GDP yesterday only boosted the AUD temporarily, highlighting the ongoing tensions regarding the global outlook. Australia’s gross domestic product (GDP) for the second quarter of this year rose 0.9 percent q/q and 3.4 percent y/y in Q2, much stronger than expectations, capping off a very strong first half where annualised growth was a robust 4.1 percent. The strength was concentrated in housing construction, mining investment and public consumption, while household spending rose a moderate 0.7 percent q/q.

Meanwhile, the S&P/ASX 200 index traded 0.54 percent lower at 6,157.5 by 03:20GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bullish at 75.28 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex