Australian bonds surge in silent trading ahead of RBA’s interest rate decision

Australia government bonds surged during Asian session Friday amid a silent trading session that witnessed domestic data of little economic significance. However, the Reserve Bank of Australia’s (RBA) monetary policy meeting, scheduled to be concluded by early next week will add further direction to the country’s debt market.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, slumped 2 basis points to 2.675 percent, the yield on the long-term 30-year bond plunged 2-1/2 basis points to 3.160 percent and the yield on short-term 2-year too traded nearly 2 basis points lower at 2.042 percent by 03:30GMT.

Australia’s 2-tier private sector credit data for the month of August improved to 0.5 percent m/m in July – the best monthly result since March. All of the improvement came from business sector credit, which accelerated to 0.8 percent m/m. Growth in housing credit was broadly steady for both the investor and owner-occupier subcategories.

"The trigger for the current downturn in prices is, however, different from usual. The turn in the market has been driven by tighter credit conditions, rather than RBA rate hikes. The bulk of this tightening has impacted investors. Indeed, with the average size of first home buyer mortgages still growing it appears that many buyers are not facing any effective tightening of credit – a point made by the RBA earlier in September. In our view, this is an important mitigating factor for the extent of the downward pressure on prices," ANZ Research commented in its latest report.

Meanwhile, the S&P/ASX 200 index remained flat at 6,197.5 by 03:40GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -120.89 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex