Australian bonds slump on hopes of U.S.-China possible trade agreement; U.S. second govt shutdown still a risk

Australian government bonds slumped across the curve during Asian trading session Tuesday on hopes of possible trade agreement. Still, low investor risk appetite due to fear of another U.S. government shutdown, limited the growth in bond yields.

“A wall of worries ahead with the increasing probability of another U.S. partial government shutdown, U.S.-China trade talks later this week being complicated by South China Sea issues, and lingering uncertainties like Brexit, is likely to keep global risk sentiments in check for today,” according to the OCBC report.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose  about 2 basis points to 2.112 percent, the yield on the long-term 30-year bond also climbed 2 basis points to 2.66 percent and the yield on short-term 2-year jumped over 1 basis points to 1.75 percent by 03:30 GMT.

“We do not expect that the U.S.-China trade talks this week to yield any specific outcomes, but the U.S. rhetoric of sufficient progress on structural issues amid the overshadowing clouds regarding the 5G/Huawei issue and South China seas tensions,” noted OCBC in a report.

“The U.S. Treasury bonds softer and the U.S. dollar underpinned overnight, expect Asian markets to tread carefully in the interim, even as Chinese stock markets re-opened on a firm tone yesterday.”

On the data front, Australia’s housing finance commitments declined at a quickest rate in December. Finance approvals are now 20 percent lower over the year. Further declines are likely as tighter lending standards continue to filter through. On the other hand, business conditions rose in January to 6.6, after the sharply decline in December.

Meanwhile, the S&P/ASX 200 index traded 0.08 percent higher at 6,022.50 by 03:40 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 0.58 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex