Australian bonds rally amid Turkey’s political crisis; 10-year yield plunges to 5-week low

Australian government bonds rallied across the board on the first trading day Monday amid the ongoing political crisis in Turkey, pushing investors towards safe-haven assets. Also, along with the firmness in the U.S. Treasuries, the Aussie 10-year bond yield plunged to a 5-week low.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 3-1/2 basis points to 2.575 percent, the yield on the long-term 30-year Note also dipped 2-1/2 basis points to 3.063 percent and the yield on short-term 2-year slumped 2 basis points to 2.003 percent by 03:30 GMT.

Following the ongoing political crisis in Turkey, investors moved to safe-haven buying. The ANZ reported that the Turkey contagion risks are elevated and there was a strong risk-off move in global markets as President Erdogan’s speech failed to calm nerves and President Trump pledged to double the steel and aluminum tariffs against the country.

Similarly, the OCBC Bank in its daily Treasury outlook note said the Turkish crisis continues to develop, with limited market concerns of potential contagion to some exposed European banks. Turkish president Erdogan warned of “economic warfare” as US president Trump hiked the metal tariffs on the country, and the lira briefly bottoming out after the banking regulator limited swap transactions.

"Government bond yields in advanced economies fell on Friday as concerns about emerging markets drove safe-haven flows. The yield on the US 10-year government bond fell from 2.93 percent to 2.87 percent. The yield on the US 2-year government bond fell from 2.65 percent to 2.60 percent," said St. George Bank in its morning note.

“The yield on the 10-year Turkish government bond, however, jumped from 18.85 percent to 21.01 percent on Friday. Investors are concerned about President Erdogan’s influence on monetary policy and over Turkey’s detention of some Americans, which has resulted in the US imposing tariffs on Turkey.”

Meanwhile, the S&P/ASX 200 index traded 0.48 percent lower at 6,189.5 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -119.46 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex