Australian bonds slump as global risk sentiment improves

The Australian government bonds slumped Wednesday as investors switched to risk-on mode after two days of mayhem. Also, Investors shifted from safe-haven buying after markets saw modest further gains in first quarter US GDP revisions, finishing off around +1.1 percent, a significant improvement from the preliminary release.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price rose more than 2-1/2 basis points to 2.022 percent and the yield on short-term 2-year note jumped 4 basis points to 1.614 percent by 05:10 GMT.

The final 1Q16 GDP reading increased +1.1 percent (preliminary: +0.8 percent), versus the unrevised +1.4 percent reading seen in 4Q15, just above market expectations for a +1.0 percent result.

Personal consumption increased +1.5 percent (preliminary: +1.9 percent), versus the +2.4 percent reading seen in 4Q15. Core PCE increased +2.0 percent, following the +1.3 percent increase seen in 4Q15. Residential investment increased +15.6 percent in 1Q16, versus the +10.1 percent seen in 4Q15.

Also, exports increased +0.3 percent in 1Q16, alongside a -0.5 percent decrease from imports. According to the release, downward pressure from private inventories contributed -0.23 percent to the headline estimate, versus -0.22 percent seen in 4Q15.

Despite the upward revisions seen in the headline measure, this report clearly reflects the weaker tone of data seen to open the year. Although a number of releases continue to reflect current economic dampness, the potential for a rebound in inventories in the months ahead should provide a boost to growth as we move further into 2016.

“Upbeat US economic data helped spark a rise in risk appetites in global markets following last week's Brexit vote,” the St George economists said in a note.

"Bond yields edged higher overnight, as stock market gains encouraged a slight reversal of recent safe-haven flows," they added.

Today, oil prices rose as investors took advantage of a two-day slide in crude following Britain's vote to leave the European Union to lock in lower prices. A looming strike at several Norwegian oil and gas fields threatened to cut output in western Europe's biggest producer, also helped support prices on Wednesday. The International benchmark Brent futures rose 0.39 percent to $49.45 and West Texas Intermediate (WTI) climbed 0.71 percent to $48.19 by 05:10 GMT.

Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading down 0.33 percent, or 17 points, at 5,108.5 by 05:10 GMT.