Australian bonds slump after RBA November minutes flags further decline in unemployment rate

Australian government bonds slumped across the curve during the Asian session on Tuesday after the Reserve Bank of Australia (RBA) flagged that there could be a more pronounced decline in the unemployment rate in the near-term.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 4 basis points to 2.707 percent, the yield on the long-term 30-year bond jumped 4 basis points to 3.233 percent and the yield on short-term 2-year up 2-1/2 basis points to 2.076 percent by 03:20GMT.

There were increasing notes of optimism in the Reserve Bank board meeting minutes released today. It corresponds with the RBA’s more upbeat growth and employment forecasts, which were published in its Statement on Monetary Policy earlier this month. The major source of optimism came from the labour market. There was discussion that “there could be a more pronounced decline in the unemployment rate in the near-term”.

St.George Bank said the RBA also seemed upbeat around business investment, which “could turn out to be stronger than currently expected”. The RBA maintained its view that “the next move in the cash rate was more likely to be an increase than a decrease, but that there was no strong case for a near-term adjustment in monetary policy”.

“The US Treasuries were supported by the risk-averse mood. Yields on US 10-year yields initially rose to 3.09 percent, but then edged down to 3.05 percent to be down 1 basis point. Market pricing has placed a 68 percent probability of a rate hike in December, down from 76 percent a week ago, after a range of more cautious Fed commentary,” noted St.George Bank.

Risk aversion lifted, hitting shares, and supporting bonds. The Australian dollar weakened slightly, despite the US dollar also falling. Trade tensions were likely a factor behind the weakening in sentiment, after an Asia-Pacific Economic Cooperation (APEC) meeting failed to agree on a communique for the first time.

Meanwhile, the S&P/ASX 200 index traded 0.36 percent lower at 5,649.5 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 175.29 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex