Australian bonds rally as geopolitical risks resurface; 10-year bond yield at 1-week low

Australian government bonds rallied on Wednesday as investors risk sentiments weighed down by renewed geopolitical caution towards US negotiations with North Korea and China.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 2 basis points to 2.846 percent, the yield on the long-term 30-year Note dipped 3-1/2 basis points to 3.330 percent and the yield on short-term 2-year down 1/2 basis point to 2.031 percent by 03:40 GMT.

Renewed geopolitical uncertainty towards US negotiations with North Korea and China explain the Aussie’s reversal. Trump also hosed down optimism over trade negotiations between the US and China, suggesting that “there is no deal,” casting doubt that both sides were on the cusp of an agreement to reduce the size of the US trade deficit with China.

In the United States, Treasuries held tight ranges on Tuesday during a relatively quiet US session with little in the way of significant economic data. With respect to data, markets were largely limited to Philadelphia Fed non-manufacturing and Richmond Fed manufacturing releases, neither of which would be described as market moving. Continued focus continued to be on chatter regarding trade discussions between the US and China which appear only loosely useful in terms of what will actually arise from any formal trade agreements.

Similarly, off-the-cuff doubt related to the possible cancellation of the June summit between US President Trump and North Korea Leader Kim Jong-un is something markets will continue to focus on, particularly if increasingly hostile rhetoric returns to the forefront. Markets now look ahead to a greater flow of data on Wednesday, highlighted by Markit US manufacturing/services PMI, new home sales and minutes from the 1-2 May FOMC statement, alongside a 5-year Note auction in the early afternoon.

Meanwhile, the S&P/ASX 200 index traded flat at 6,042.5 by 03:40 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 59.83 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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