Australian bonds slump following weakness in U.S. Treasuries; RBA meeting minutes fail to steer markets

The Australian bonds slumped with U.S. Treasuries Tuesday as market speculation rise on new hawkish Federal Reserve chairperson. However, the October Reserve Bank of Australia (RBA) meeting minutes failed to steer markets.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 2 basis points to 2.777 percent, the yield on the long-term 30-year note also climbed 1-1/2 basis points to 3.553 percent and the yield on short-term 2-year traded nearly 1 basis point higher at 1.917 percent by 02:30GMT.

Australian bonds fell with Treasuries as speculation climbed that the next head of the Federal Reserve will be more hawkish. The market is expecting Jerome Powell to be the next Federal Reserve Chair after Janet Yellen’ term expires on February 1 next year.

The October minutes noted that the RBA policymakers see no “mechanical implications” for Australian rates stemming from tighter monetary policy elsewhere. The central bank also showed some sign of worry about the effects of excessive Australian dollar strength. The AUD has slipped in the last few months, but AUD/USD remains close to this year’s peak, which is also a 2-year high.

The RBA added that the labour market conditions likely to remain firm, it expressed confidence about the outlook for wage growth and household consumption. Also, it noted that domestic economic conditions will determine when it decides to hike interest rates. And, given its commentary on Australia’s inflation outlook, it seems that could still be some way off at this point.

Meanwhile, the S&P/ASX 200 index rose 0.53 percent to 5,870.50 by 02:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 68.68 (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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