Australian bonds slump after U.S. 10-year Treasury yield hits 4-month high; easing trade war fear supports sell-off

Australian government bonds slumped across the curve during Asian session Wednesday after the U.S. 10-year Treasuries yield surged to 4-month high on expectations of the Federal Reserve policy tightening. Also, the rise in yield was partly supported by easing investors’ concern about a full-blown global trade war.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 1-1/2 basis points to 2.718 percent, the yield on the long-term 30-year bond traded 1 basis point higher at 3.207 percent and the yield on short-term 2-year climbed 1-1/2 basis points to 2.137 percent by 03:20GMT.

Overall market sentiments were positive, suggesting some shrugging off of trade fear by investors for now. Wall Street was mostly higher, while bond yields and the Australian dollar rose.

In the United States, the Treasury witnessed a heavy sell-off supported by strong economic data, such as wages. The 10-year yield surged to a 4-month high of 3.09 percent overnight.

“Yields on US Treasuries rose, helped by an unexpectedly large surge in housing starts. US 10-year yields touched 3.09 percent, their highest since May, before settling at 3.06 percent at the close. The renewed lift in yields suggests some easing in risk aversion, and focus towards inflation and the Federal Reserve’s FOMC meeting next week. Markets have fully priced in a 25 basis point rate hike from the Fed,” noted St.George Bank.

Meanwhile, the S&P/ASX 200 index traded 0.12 percent lower at 6,176 by 03:30GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 102.40 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex