Australian bonds slump following weakness in U.S. Treasuries; two-year yields hit 9-year high

Australian government bonds slumped Tuesday following weakness in the U.S. Treasuries after U.S. Treasury two-year note yields touched a fresh nine-year high as investors priced in an interest rate hike of 25 basis points by the Federal Reserve in December meeting.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 2-1/2 basis point to 2.659 percent, the yield on the long-term 30-year note jumped 1-1/2 basis points to 3.425 percent and the yield on short-term 2-year climbed 4-1/2 basis points to 1.852 percent by 02:20 GMT.

U.S. Treasury two-year note yields hit a fresh nine-year high overnight as the yield curve resumed its flattening and investors priced in a 25-basis point interest rate hike by the Federal Reserve in December. A flat yield curve suggests the Fed was on course to hike interest rates, while tepid inflation should cap longer-dated yields, Reuters reported.

The yield gap between shorter-dated and longer-dated Treasuries shrank on Monday, with the spread between five-year and 30-year yields at 80.70 basis points. The spread between U.S. two-year note yields and U.S. 10-year notes also contracted to 71.70 basis points.

On the data front, Australia ANZ-Roy Morgan consumer confidence rose to 114.8, up from prior 112.6.

Meanwhile, the S&P/ASX 200 index traded 0.54 percent lower at 5,982.5 by 02:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at -96.93 (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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