Australian bonds slump following RBA’s optimism over economic growth

Australian government bonds slumped on Tuesday following December Reserve Bank of Australia meeting minutes which displayed confidence in unemployment and inflation going forward.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 2 basis points to 2.563 percent, the yield on the long-term 30-year note surged 2 basis points to 3.284 percent and the yield on short-term 2-year climbed over 2 basis points to 1.939 percent by 03:00 GMT.

The RBA’s policymakers in the meeting minutes said that recent data had increased confidence that there would be further progress on fronts such as unemployment, inflation and household debt in 2018. The central bank added that wage growth appeared to have stabilized at a low rate and is expected to pick up over time. In addition, data suggested above-average jobs growth in next few quarters and output growth is still expected to pick up gradually.

The central bank said that the outlook for household consumption continued to be a significant risk given that household incomes were growing slowly and debt levels were high. They left the continued fret that an appreciating exchange rate would be expected to result in a slower pick-up in domestic economic activity and inflation than currently forecasted.

In the United States, the Treasury yields rose as investors turn their focus to the proposed overhaul of the U.S. tax system. The yield on the benchmark 10-year Treasury note sat higher at 2.385 percent at 1:19 p.m. ET, while the yield on the 30-year Treasury bond was up at 2.735 percent. Bond yields move inversely to prices.

On Friday, Republicans released their final proposal to overhaul the country's tax system, which would look at slashing taxes for businesses, while trimming rates for individuals and modifying tax deductions. The House and Senate GOP are looking to pass the measure this week.

Meanwhile, the S&P/ASX 200 index traded 0.29% higher at 6,035.5 by 03:00 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at +46.29 (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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