Australia 10Y bond yield hits 18-months low on surprise rise in November jobless rate; weak U.S. Treasuries supports safe-haven buying

Australia 10-year bond yield hits an 18-month low on Thursday as investors moved to safe-haven buying following surprise rise in November jobless rate. Along with that, U.S. Treasury yields dipped over 8-month low after the Federal Reserve cut interest rate projections for 2019.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 4 basis points to 2.350 percent, the yield on the long-term 30-year bond also dipped 5 basis points to 2.834 percent and the yield on short-term 2-year down 1 basis point to 1.949 percent by 04:00GMT.

Overnight, the Fed raised the interest rate to 2.25-2.50 percent as widely expected. While the economy is still looking to be very healthy, the FOMC acknowledged that financial developments might tilt their risk assessment going forward. The latest economic forecasts showed policymakers expect two rate hikes in 2019, a reduction from three projected in September.

“Following the Fed decision, front-end Treasuries fell and the long end rallied, reflecting market expectations of a more dovish signal from the central bank about rate hikes in 2019. Investors remained focused on any announcement of further stimulus measures at an economic policy meeting in China,” ANZ economists noted.

The U.S. benchmark 10-year yields fell below 2.75 percent for the first time since April, while the spread between 2- and 10-year bond yields declined to 11bps.

“The financial markets shot down the notion that the Fed delivered a dovish rate hike at the December FOMC meeting. The yield curve flattened, the dollar strengthened and the stock market sold off sharply, said Mark Vitner, senior economist at Wells Fargo.

“Recessions are typically triggered by policy mistakes and the Federal Reserve may very well be on the road to making one. The policy statement that accompanied the Fed’s latest rate hike attempted to allay fears the Fed would tighten too much by acknowledging the economic outlook has diminished and that the balance of risks was now roughly even,” he added.

Moreover, the Australian dollar weakened as the Fed delivered a much-anticipated hike. While the Australian employment report added further volatility. The November unemployment rate rose to 5.1 percent from the 6-year low recorded in the previous two months. Also disappointing was the surprise jump in the underemployment rate to 8.5 percent from 8.3 percent.

Meanwhile, the S&P/ASX 200 index traded 0.50 percent lower at 5,481.5 by 04:10 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -105.05 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex