Australian bonds slump on Yellen’s hawkish comments, 10-year yields hit highest this year

The Australian government bonds slumped Friday after the Federal Reserve Janet Yellen said that recent upbeat economic data strengthened the case of December rate hike.

Also, rising probability of a December rate hike by the Federal Reserve drove out investors from safe-haven buying.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 13 basis points to 2.72 percent, the yield on 15-year note jumped 14 basis points to 3.14 percent and the yield on short-term 2-year bounced 5 basis points to 1.827 percent by 04:30 GMT.

The Australian bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield jumped 5-1/2 basis points to 2.32 percent. The probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 96 percent.

Federal Reserve Chair Janet Yellen, in her congressional testimony, solidified bets that the central bank was on track to raise interest rates in December, reported Reuters.

On Tuesday, the Reserve bank of Australia in its November meeting minutes mentioned that the underlying inflation is expected to return to normal levels over time and the Australian economy is seen growing close to potential over the next few quarters, before picking up further.

Further, the minutes repeated that a rising Australian dollar could complicate the economic transition and holding policy rate steady in November meeting was consistent with growth and inflation goals. It further mentioned that a steadier Chinese economy had reduced downside risks to the global growth outlook, while risks to global inflation outlook more balanced than for some time.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.04 percent higher to 5,358.5 by 05:10 GMT. While at 05:00 GMT, the FxWirePro's Hourly Australian Dollar Strength Index remained highly bearish at -116.81 (lower than the range of -75 for bearish trend).