Australian bonds nearly flat in subdued trade, investors now eye Q3 CPI

The Australian government bonds traded nearly flat Friday, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance.

Also, now investors will remain focussed on the upcoming third quarter consumer inflation data in an attempt to estimate the RBA's most likely policy step.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price hovered around 2.30 percent mark, the yield on 15-year note remained steady at 2.66 percent and the yield on short-term 2-year stood flat at 1.67 percent by 04:50 GMT.

Australia September employment change fell unexpectedly by -9.8K (registered a second straight month of declines), markets expectation was for 15K increase, following the previous decline of 3.9K in August. Full-time employment dipped 53K in September, the biggest drop since April 2011; part-time employment advanced 43K. On the other hand, the unemployment rate remained steady at 5.6 percent, beating market consensus of 5.7 percent, from 5.6 percent in August.

The Australian government publishes official Consumer Price Inflation (CPI) data every quarter, and Q3 CPI data is due for release on October 26th. Inflation is a key consideration when it comes to the outlook for Reserve Bank of Australia's (RBA) monetary policy.

"We expect the trimmed mean to have risen by 0.3 percent q/q and the weighted median by 0.4 percent q/q. This would see the average of the two underlying measures rise by 0.4 percent q/q and be steady at 1.5 percent y/y," said ANZ in a note to clients.

According to latest Reuters poll on the Australian economy, forecasts for inflation was at 1.2 percent for 2016, 2.1 percent in 2017 and 2.4 percent in 2018. Similarly, forecasts for GDP was at 2.9 percent for 2016 (also a poll in July showed the same result), 2.8 percent for 2017 and 2.9 percent in 2018.

Moreover, RBA Governor Lowe said that recent data suggest that the economy is adjusting reasonably well and he is watching employment and stability of financial system when setting rates and added that when judging if inflation is too low, there is need to consider the public interest.

Also said that inflation expectations have declined, but not at unprecedented lows; there is a need to guard against inflation expectations falling too far and Q3 CPI will be an important update. Added that labour market is mixed, jobless rate down but underemployment high and wages weak.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.35 percent lower at 5,404.5 by 04:50 GMT.