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Australia government bonds slumped across the curve during Asian session Tuesday following heavy sell-off in the U.S. Treasuries ahead of the FOMC policy decision, where an interest rate hike is fully priced in. This heavy sell-off started largely after the European Central Bank President Mario Draghi showed confidence in the pickup in inflation.
The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 4-1/2 basis points to 2.755 percent (highest since June 14), the yield on the long-term 30-year bond traded 4 basis points higher at 3.241 percent and the yield on short-term 2-year surged 3 basis points to 2.127 percent by 03:20GMT.
“Yields on the U.S. Treasuries rose despite the ongoing concerns over trade. The lift in European yields on the back of Draghi’s comments that inflation was rising was likely a contributing factor. The U.S. 10-year yields rose 3 basis points to 3.09 percent,” noted St.George Bank in its morning report.
Draghi said that the ECB’s expectation for strong economic growth and rising core inflation over the medium-term. However, he downplayed emerging market pressures, but added that trade protectionism holds a significant risk, overall describing risks to the economic outlook as broadly balanced. He said euro area HICP inflation has risen this year and is sitting at 2%, but this largely reflects higher oil prices.
Lastly, markets will now eye Wednesday’s Federal Reserve’s monetary policy statement to understand the future direction in the fed funds rate.
“All eyes are on this Wednesday’s Fed as market participants assess the outlook for tightening in 2019. This week’s hike is almost fully priced and fed funds futures are pricing in nearly 80 percent of a 25bpt hike for December. We remain longer-term USD bears given structural challenges posed by widening fiscal and current account deficits,” noted Shaun Osborne, chief FX strategist at Scotiabank.
Meanwhile, the S&P/ASX 200 index traded nearly flat at 6,177.5 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -51.41 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex
