Australian bonds rally on escalating tensions of a trade war; U.S. 10-year yield dips to 2-week low

Australian government bonds rallied on Tuesday as investors moved to safe-haven buying after U.S. President Donald Trump threatened to hit China with new tariffs on $200 billion.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 4 basis points to 2.629 percent (nearly 3-week low), the yield on the long-term 30-year Note dipped 4 basis points to 3.138 percent and the yield on short-term 2-year down 1/2 basis point to 1.997 percent by 02:00 GMT.

Bonds markets witnessed heavy buying after the world’s second-largest economy, China announced at the weekend that it would retaliate against new US tariffs on USD50 billion in Chinese imports that will go into effect within days, taking the world’s two largest economies to the brink of a full-scale trade war.

Also, U.S. President Donald Trump threatened on Monday to impose a 10 percent tariff on $200 billion of Chinese goods, escalating a tit-for-tat trade war with Beijing.

In the United States, Treasuries gained on weak investors risk appetite. On Tuesday, the US session started on a relatively high note with lingering concerns related to escalating trade tensions between the US and China. On balance, these issues are unlikely to fade any time soon, particularly as consideration of potential future actions are discussed. At the time of writing, the U.S. 10-year bond yield fell 4-1/2 basis points to 2.884 percent, falling to 2-week low.

Markets now look ahead to a slightly greater flow of data on Tuesday, highlighted by housing starts/building permits data, pushing along what stands to be a relatively quiet week in terms of the economic calendar.

On the other hand, figures from the Australian Bureau of Statistics (ABS) released last week showed Australian employment rose by lower-than-expected in May with gains led wholly by part-time work while the jobless rate ticked down to its lowest since November, a mixed outcome that points to tepid wages growth. The unemployment rate eased to 5.4 percent from 5.6 percent in April. It has remained between 5.4 percent and 5.6 percent for almost a year now.

Meanwhile, the S&P/ASX 200 index traded 0.48 percent lower at 6,066.5 by 02:05 GMT, while at 02:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -140.21 (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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