Australian bonds slump on higher risk appetite; next week’s RBA policy decision in focus

The Australian government bonds slumped Thursday as investors moved away from the safe-haven buying amid gains in riskier assets including equities and crude oil.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 1-1/2 basis points to 2.023 percent, the yield on 12-year note jumped 2-1/2 basis points to 2.181 percent and the yield on short-term 2-year climbed nearly 1 basis point to 1.594 percent by 04:30 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 climbed nearly 6 percent after OPEC confirmed that the group has struck a deal to lower crude output at its policy meeting in November.

This is the first agreement to cut production since the market crashed in 2014 following a supply glut. The International benchmark Brent futures rose 4 percent to $49.06 and West Texas Intermediate (WTI) also bounced 4 percent to $47 from the yesterday’s session.

We foresee that the debt market will remain volatile ahead of the Reserve Bank of Australia (RBA) monetary policy meeting scheduled next week. The Reserve Bank of Australia will hold its monetary policy meeting next week on October 4, announcing its decision at 03:30 GMT. We foresee that the central bank will remain concerned about persistently low inflation, but the strong housing market will keep policy on hold.

"We continue to expect the RBA to keep the cash rate on hold at the record low of 1.5%.  The trajectory of the AUD also remains important to the RBA’s deliberations, as well as labour and housing market data," said ANZ in a report to clients.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.30 percent higher to 5,456.5 by 04:30 GMT.