Australian bonds slump despite global risk-off sentiments after RBA keeps policy rate steady

Australian government bonds slumped during Asian session of the second trading day of the week Tuesday, even as investors maintained distance from riskier assets amid ongoing trade tensions between the United States and China after the Reserve Bank of Australia (RBA) remained on hold at its monetary policy meeting, held today.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, jumped  nearly 2-1/2 basis points to 1.042 percent, the yield on the long-term 30-year bond surged 4 basis points to 1.729 percent and the yield on short-term 2-year traded 3 basis points higher at 0.768 percent by 05:50GMT.

Global risk appetite is likely to remain in the doldrums after US-China trade tensions re-escalated overnight as US president Trump determined that China is a currency manipulator. This came after the USDCNY broke the key 7 handle yesterday in response to the recent Trump announcement to levy 10 percent tariffs on another US$300 billion of Chinese imports from September 1, OCBC Treasury Research reported.

The RBA has held interest rates steady at a record low 1 percent and slightly lowered its economic growth and inflation forecasts. The decision by the central bank board early today to keep rates on hold follows consecutive interest rate cuts in June and July, Australian Financial Review reported.

"It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target," Dr Lowe said in a post-meeting statement.

Meanwhile, the S&P/ASX 200 index suffered nearly 1 percent at 6,414.50 by 05:55GMT.