Australian bonds plunge tracking U.S. Treasuries after risk sentiments lift on trade deal optimism

The Australian government bonds during Asian session of the last trading day of the week Friday after risk sentiments were lifted, following trade deal optimism amid ongoing Brexit uncertainties.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, jumped 8-1/2 basis points to 1.296 percent, the yield on the long-term 30-year bond surged 8 basis points to 1.878 percent and the yield on short-term 2-year gained 2 basis points to 0.893 percent by 04:25GMT.

Risk sentiments got a major lift overnight amid hopes that existing US-China tariffs may be unwound as part of the Phase 1 deal. Meanwhile, the Bank of England kept its policy rate static at 0.75 percent but the fact that there were two dissenters preferring a 25bp rate cut amid the Brexit uncertainties suggest that the bias has clearly turned dovish, OCBC Treasury Research reported.

The S&P500 rose 0.27 percent while UST bonds tumbled with the 10-year yield hitting a three-month high of 1.97 percent before closing at 1.92 percent. Fed funds futures pricing of a further 25bp rate cut was also pared further.

Lastly, the European Commission (EC) cut its growth forecast to 1.2 percent by 2021 with a muted inflation outlook of 1.3 percent then, with risks leading decidedly to the downside, especially with the possibility of a disorderly Brexit, and called for using available fiscal space actively, the report added.

Meanwhile, the S&P/ASX 200 index edged tad -0.34 percent down to 6,687.50 by 04:30GMT.