Australian bonds slump on firm energy prices; markets likely to remain volatile ahead of OPEC meeting

The Australian government bonds slumped Wednesday following firmness in the energy prices ahead of OPEC ministerial gathering, in which oil producing countries are expected to strike an agreement on output cut.

Also, debt market is expected to remain volatile ahead of today’s meeting, which will likely portray a clear message on a production cut.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 3-1/2 basis points to 2.74 percent, the yield on the 15-year note climbed 3 basis points to 3.15 percent and the yield on short-term 2-year inched 1/2 basis point to 1.85 percent by 04:50 GMT.

The Australian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Reserve Bank of Australia's target. Crude oil prices recovered ahead of OPEC ministerial gathering in Vienna today. The International benchmark Brent futures rose 0.66 percent to $47.63 and West Texas Intermediate (WTI) jumped 0.63 percent to $45.52 by 04:50 GMT.

The Organization of the Petroleum Exporting Countries (OPEC) is meeting officially in Vienna later in the day to discuss a planned production cut in an effort to curb overproduction that has dogged markets and more than halved prices since 2014.

There remains disagreement among OPEC-members over which producers should cut by how much, and a plan for non-OPEC oil giant Russia to participate has so far also failed.

Moreover, 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 0.49 percent lower at 5,440.50 by 04:50 GMT. While at 04:00 GMT, the FxWirePro's Hourly Australian Dollar Strength Index stood neutral at +40.20 (higher than +75 represents purely bullish trend).