Australian bonds remain tad lower tracking U.S. Treasuries following Fed’s policy decision

Australian government bonds remained tad lower during Asian session Thursday, tracking a similar movement in the United States Treasuries after the Federal Reserve, in its monetary policy meeting, concluded yesterday, said that it foresees inflation disappointment as a temporary phenomenon, rather than a worry signal for the world’s largest economy.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose nearly 1 basis point to 1.792 percent, the yield on the long-term 30-year bond hovered around 2.427 percent and the yield on short-term 2-year surged 1-1/2 basis points to 1.338 percent by 04:30GMT.

US Federal Reserve Chairman Powell overnight said there’s no strong case for the Fed to move rates either way, dashing market expectations for a rate cut any time soon. The market responded accordingly. US equities sold off, US bond yields rose and the US dollar appreciated, St. George Economics reported in its Morning Report.

The Fed also tweaked the interest on excess reserves (IOER) rate from 2.4 percent to 2.35 percent, but ascribed this as a small technical adjustment rather than “any shift in the intended stance of monetary policy”. Fed chair Powell opined that the recent softness is likely to be “transitory” and “we don’t see a strong case for moving in either direction” as “our baseline view remains that…inflation will return to 2 percent over time”, which prompted the UST bond yields to subsequently rebound from the initial dovish reading of the FOMC statement, whilst the S&P500 closed lower, OCBC Treasury Research reported.

Meanwhile, the S&P/ASX 200 index traded tad 0.19 percent lower at 6,309.5 by 04:35GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -63.27 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex