Australian bonds rally on short-covering, tracking U.S. Treasuries

The Australian government bonds rallied Thursday as investors covered previous short positions before the end of the trading week and also tracking U.S. Treasuries. However, gains in equities amid a neutral Federal Budget for FY2017-18 limited gains in the debt market.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell nearly 1 basis point to 2.66 percent, the yield on 15-year note slipped 1/2 basis point to 3.07 percent and the yield on short-term 2-year also traded 1-1/2 basis points lower at 1.69 percent by 05:40 GMT.

Australian retail sales fell for the second consecutive month, with nominal sales falling 0.1 percent in March, from a downwardly revised February. Sales are now just 2.1 percent higher than a year ago, the weakest annual growth rate since June 2013. Sales were particularly weak in Queensland (-1.3 percent m/m). Sales in NSW were soft (+0.1 percent m/m), while in Victoria sales bounced back from February’s weakness.

The recent speech by RBA Governor Lowe highlighted the Bank’s growing concern about the vulnerability of the economy to shocks to the household sector given the high level of indebtedness. In line with this concern we have argued in earlier research that the household saving rate is likely to have risen in Q1. The soft retail sales data is consistent with this.

Meanwhile, the ASX 200 index traded 0.31 percent down at 5,865.50 by 05:40GMT, while at 05:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 39.52 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex