Australian short-term bonds gain following disappointment in China’s manufacturing PMIs

Australian government short-term bonds gained during Asian session Tuesday as factory activity in China expanded for a second straight month in April but at a much slower pace.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose about 1/2 basis point to 1.803 percent, the yield on the long-term 30-year bond jumped 2 basis points to 2.461 percent and the yield on short-term 2-year fell 1 basis point to 1.343 percent by 04:05GMT.

The official Purchasing Managers’ Index (PMI) for manufacturing surprisingly slipped to 50.1 in April from last month’s reading of 50.5, which was the first expansion in four months, data from the statistics bureau showed.

China’s PMI data for April show an improvement over the Q1 average of 49.7 amid a jump in new export orders. Although the decline in the headline PMI likely reflects a seasonal correction, it does suggest that the extent of reflation this year is slightly less than that seen in early 2016, ANZ reported.

“Moreover, global risk appetite remained resilient overnight, with the S&P 500 testing fresh highs, led by financial stocks even though Alphabet’s sales missed expectations, while the 10-year U.S. Treasuries bond yield rose 3 basis points to 2.53 percent,” OCBC noted.

Also, the chance of a rate cut by December from the U.S. Federal Reserve remained at around 90 percent. The subdued inflation data reinforced expectations for a rate cut.

Meanwhile, the S&P/ASX 200 index traded tad 0.52 percent lower at 6,306.5 by 04:10GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -59.13 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex