Australian bonds slump after U.S. President Trump supports fiscal plan; investors defy lower July retail sales

The Australian bonds slumped during early Asian trading Thursday, tracing its U.S. counterpart after yields rose on Wednesday as a congressional fiscal plan that includes a three-month suspension of the debt ceiling gained support from President Donald Trump, reducing safe-haven demand among investors worried about a short-term default. However, investors have largely shrugged off the fall in retail sales for the month of July.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped nearly 5-1/2 basis points to 2.65 percent, the yield on the 15-year note climbed nearly 5 basis points to 2.95 percent and the yield on short-term 2-year also traded nearly 5 basis points higher at 1.88 percent by 03:05GMT.

Investors have been concerned that a potential block on the Treasury's ability to sell more debt could result in a partial government shutdown or even a default that could roil financial markets. Investors had dumped Treasury bills that mature in October on worries the government would delay repaying them if the debt ceiling were not increased in time.

The proposal from top Congressional Democrats also seeks to fund the government to avert a shutdown as well as programs aimed to help those affected by Hurricane Harvey.

On the contrary, after a run of stronger than expected monthly releases, Australia’s retail sales disappointed in July, with flat sales in the month and a downward revision to June (from 0.3 percent m/m to 0.2 percent m/m). July’s flat result is soft compared to an average rise of 0.6 percent m/m through Q2 and sets a soft base for sales in Q3.  In annual terms, retail sales slipped to 3.6 y/y, from 3.7 percent y/y in June. In three-month end annualized terms, retail sales growth has fallen to 3.2 percent from 7.5 percent in June.

Meanwhile, the S&P/ASX 200 index rose 0.18 percent to 5,697.50 by 03:20 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -64.78 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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