Australian bonds slump as positive U.S. data aid markets, easing trade tensions provide modest support

The Australian government bonds slumped during Asian trading session on Monday tracking a similar movement in the United States Treasuries on burgeoning hopes of a trade deal.

Also, stronger-than-expected U.S. retail sales data alleviated concerns about the economic growth outlook.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, edged nearly 1 basis point higher to 1.180 percent, the yield on the long-term 30-year bond remained steady at 1.760 percent while the yield on short-term 2-year hovered around 0.918 percent by 03:08GMT.

Markets carried their recent buoyancy into the weekend with most major equity indices finishing strongly as the US and China both continue to display a heightened level of diplomacy going into the much awaited October meeting, ANZ noted.

In addition, the U.S. retail spending grew 0.4 percent in August stronger than the 0.2 percent increase expected by the median estimate, and followed a revised 0.8 percent increase in July. It continues to suggest resilience among the consumer despite  the trade tensions negatively impacting the business sector and financial markets, said St.George Bank in a note.

“Yields on the U.S. Treasuries rose, supported by stronger-than-expected US retail sales data. U.S. 10-year yields scaled 12 basis points higher to 1.90 percent, and have gained more than 40 basis points since early this month on easing concerns over trade and on the outlook for growth.”

DBS in its latest note said “While market participants are convinced that the Fed will cut this week, wavering resolve for further aggressive easing can be seen in the longer-dated Fed funds futures. In early September, the market was looking at a Fed funds rate of below 1 percent, this figure has since shifted above 1.30 percent, a removal of about 2 cuts. Longer-term rates have also pared back excessive pessimism with 10Y US yields (1.90 percent) some 45bps above the recent low.”

“The Fed guidance will be closely watched, although this will quickly be overridden by trade war or geopolitical developments. We reiterate our view that 10-year yields will be in the 1.50-2.0 percent range in the short term. While longer-term DM rates have likely traced a bottom, lingering risks on Iran, trade war and still-weak global economic numbers will likely restrain upside in yields.”

Meanwhile, the S&P/ASX 200 index slipped -0.04 percent to 6,653.00 by 03:20GMT.