Australian bonds slump as MI inflation index rises in September; RBA policy decision in focus

The Australian government slumped Monday as Melbourne Institute’s Australian consumer inflation index rose for the second sussesive month in September that released pressure from the Reserve Bank of Australia for further monetary easing.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 7 basis points to 2.031 percent, the yield on 15-year note jumped nearly 6 basis points to 2.361 percent and the yield on short-term 2-year climbed 3-1/2 basis points to 1.588 percent by 04:30 GMT.

The TD Securities-Melbourne Institute consumer inflation index increased 0.4 percent in September and was up 1.3 percent from a year ago. Consumer inflation rose 0.2 percent in August. On a monthly basis, it recorded highest growth since July, when inflation climbed 0.6 percent.

Moreover, the Reserve Bank of Australia will hold its monetary policy meeting next week on October 4, announcing its decision at 03:30 GMT. We foresee that the central bank will remains concerned about persistently low inflation and rising AUD, but in strong housing market will keep policy on hold.

Additionally, economic growth has held up well, commodity prices have risen, and the drag from the mining investment decline is set to fade may also pause the RBA for further monetary easing. We anticipate that the debt market will remain volatile ahead of the Reserve Bank of Australia (RBA) monetary policy meeting.

"We continue to expect the RBA to keep the cash rate on hold at the record low of 1.5 percent.  The trajectory of the AUD also remains important to the RBA’s deliberations, as well as labour and housing market data," said ANZ in a report to clients.

In addition, investors Treasury sell-off was also supported by the higher AIG manufaturing PMI data, which rose to 49.8 in September, from previous 46.9 in August.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.31 percent higher to 5,464.5 by 04:40 GMT.