Australian bonds rebound following firmness in U.S. Treasuries

The Australian government bonds rebounded Thursday as investors poured into safe-haven instruments amid firmness in the U.S. Treasuries.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 4-1/2 basis points to 2.75 percent, the yield on 15-year note dipped nearly 5 basis points to 3.22 percent and the yield on short-term 2-year slid 3-1/2 basis points to 1.90 percent by 05:00 GMT.

The Australian bonds have been closely following developments in the U.S. debt market. The benchmark 10-year bond yields fell 23 basis points to 2.41 percent in just three weeks.

Minutes from the 13 - 14 December FOMC meeting indicated that most participants judged that a gradual pace of rate increases was likely to be appropriate to promote the Committee's objectives of maximum employment and 2 percent inflation (currently expected to be roughly 75 basis points of tightening over the course of 2017).

A gradual pace was also viewed by some participants as likely to be warranted because the proximity of the federal funds rate to the effective lower bound placed constraints on the ability of monetary policy to respond to adverse shocks to the aggregate demand for goods and services.

However, while viewing a gradual approach to policy firming as likely to be appropriate, participants emphasised the need to adjust the policy path as economic conditions evolved. They pointed to a number of risks that, if realised, might call for a different path of policy than they currently expected (highlighting increased uncertainty regarding fiscal and other economic policies). As to be expected policymakers are likely to maintain current views until further details surrounding fiscal policy are revealed.

Lastly, investors will remain keen to focus on the upcoming economic data, highlighted by trade balance, building approvals and retail sales.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.14 percent lower at 5,716.5 by 05:00 GMT. While at 05:00 GMT, the FxWirePro's Hourly Australian Dollar Strength Index remained highly bearish at -140.35 (lower than -75 represent a bearish trend).