Disappointing March retail sales drag Australian 10-year yield to over 3-week low

Australian government bonds gained on Tuesday following weaker-than-expected March retail sales data, hinting that weaker consumer spending could drag overall economic activity. That dragged the benchmark 10-year Note yield to over 3-week low of 2.740.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell over 2 basis points to 2.740 percent, the yield on the long-term 30-year Note dipped 3 basis points to 3.251 percent and the yield on short-term 2-year slumped nearly 1/2 basis point to 2.023 percent by 03:00 GMT.

March retail sales growth registered a flat reading, disappointing investors by coming weaker-than-expected of 0.2 percent m/m growth, down from 0.6 percent m/m increase seen in February.

"While there was a rise in food retailing of 0.7 percent in March 2018 all other industries fell - cafes, restaurants and takeaways -0.8 percent led the falls, but other retailing -0.6 percent, household goods retailing -0.3 percent, department stores -0.5 percent and clothing, footwear and personal accessory retailing -0.2 percent also fell," said Ben James, ABS Director of Quarterly Economy Wide Surveys.

In the United States, Treasuries were little changed, holding relatively tight ranges during a relatively quiet session light on data of great significance. With respect to speakers, markets received a greater flow of commentary to open the week, though it all largely amounted to continued support for further tightening given the relatively strength of the US economy.

Markets now look ahead to a light flow of data on Tuesday, though a significant point of interest will be market support for the afternoon's 3-year Note auction given the recent growth of issuance. Additionally, markets receive overnight commentary from Fed Chair Jerome Powell.

Moreover, the bonds investors still follow the dovish policy statement from the Australian central bank release last week on Friday, where the RBA noted that March quarter inflation outcomes were broadly in line with the forecast in the February Statement on Monetary Policy and confirmed that inflation remains low but stable. The low inflation outcomes reflect spare capacity in the economy and the associated low wages growth, as well as the ongoing downward pressure on retail prices due to increased competition in the sector.

Meanwhile, the S&P/ASX 200 index traded 0.14 percent higher at 6,090.5 by 03:20 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -5.03 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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