Australian bonds slump across curve after U.S. 10-year Treasury yield jumps to 7-year high

Australian government bonds slumped across the curve during Asian session on Monday after the U.S. 10-year Treasury yield jumped to a 7-year high. This sell-off in bonds was largely driven by the Friday’s U.S. September employment data, where the unemployment rate declined to its lowest since 1969.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose over 5 basis points to 2.781 percent (highest since September 26) , the yield on the long-term 30-year bond surged 5 basis points to 3.260 percent and the yield on short-term 2-year up 3 basis points to 2.027 percent by 03:50GMT.

“The 10-year UST bond yield surged further to 3.25 percent before closing at 3.23 percent (highest close since May 2011), which steepened the yield curve further, whilst Wall Street and the USD slipped on Friday,” noted OCBC Bank.

“US’ September nonfarm payrolls rose a disappointing 134k (forecast: 185k), but the previous two months data saw a significant upward revision of 87k, and the unemployment rate unexpectedly fell more than expected to 3.7 percent (lowest since 1969) despite distortions from Hurricane Florence. Average hourly earnings also rose 0.3 percent m/m as expected in September, with the August data also revised down from 0.4-0.3 percent m/m, and the y/y prints easing back from 2.9-2.8 percent”

On the other hand, trade tension between U.S. and China is also a concern going ahead. A full-fledged trade war between the world’s two big economies will impact China's sixth largest trading partner, Australia.

“News of a supposed China tiny chip hack into top US technology companies could also herald extra headwinds for US-China bilateral relations going forward amid the current escalating trade tensions,” noted OCBC Bank in its Treasury outlook report.

“The US-China relationship turned from bad to worse after US Vice President Mike Pence delivered his most hawkish criticism against China on a broad range of topics such as China’s alleged meddling on US elections, China’s unfair trade practices, Taiwan issues as well as freedom of religion etc”

On the data front, ANZ Australian Job Advertisements declined 0.8 percent in September, following a fall of 0.7 percent in the prior month. On an annual basis, growth slowed to 4.7 percent in September (vs 5.1 percent in August).

Meanwhile, the S&P/ASX 200 index traded 0.66 percent lower at 6,104.5 by 04:00 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at -92.08 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex