Australian bonds rally as concerns swirled over U.S.-China trade talks; 10-year yield down 6 bps

Australian government bonds rallied across the curve during Asian trading session Friday as concerns hovered over U.S.-China trade talks. Also, bonds extended gains amid worries on economic growth.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 6 basis points to 2.216 percent, the yield on the long-term 30-year bond slumped 5-1/2 basis points to 2.729 percent and the yield on short-term 2-year also traded nearly 4 basis points lower at 1.826 percent by 04:00 GMT.

“The U.S. 10-year yields drifted lower throughout the trading day to close at 2.71 percent. German 10-year yields fell below 0.20 percent, as the European Central Bank (ECB) highlighted downside risks, before settling 5 basis points lower on the day at 0.18 percent. Australian 3-year futures edged firmer to 98.28 and 10-year futures rose 4 tics to test 97.77,” noted St.George Bank.

The U.S. government shutdown concerns and Brexit uncertainty remained top of mind for financial markets. These concerns were also spoken about in various World Economic Forum interviews, but the market impact was limited.

Overnight, U.S. Commerce Secretary Wilbur Ross said that the U.S.-China negotiations were “miles and miles from getting a resolution”.

On the currency, the Australian dollar fell to recent lows despite the solid employment print. Weak global manufacturing data and little evidence of progress in the trade negotiations between the US and China dented sentiment. The AUD was also held back by news of further out-of-cycle rate hikes for mortgages, the ANZ noted.

Meanwhile, the S&P/ASX 200 index traded 0.46 percent higher at 5,856.50 by 04:00 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -21.48 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex