Australian 10-year bond yield dips to 1-week low on North Korea, Trump trade worries

Australian government bonds rallied on last trading day of the week Friday, with persistent global trade worries compounded when Washington suddenly cancelled a nuclear summit with North Korea, pushing the 10-year bond yield to a 1-week low.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 1-1/2 basis points to 2.792 percent, the yield on the long-term 30-year Note also dipped 1-1/2 basis points to 3.295 percent and the yield on short-term 2-year down 1 basis point to 2.012 percent by 03:50 GMT.

Renewed geopolitical uncertainty towards US negotiations with North Korea and China explain the Aussie’s bonds firmness. In a letter released by the White House, Trump informed Kim Jong Un he was cancelling their summit next month in Singapore, blaming North Korea's "anger" and "hostility" for the spectacular collapse of the historic event. Also, U.S. late Wednesdayannounced it would investigate auto imports on national security grounds, a move that could lead to yet more steep tariffs.

In the United States, Treasuries found upward pressure across much of the curve, alongside equity market weakness, as markets absorbed a mixed run of economic data and increased political tensions following U.S. President Trump's decision to cancel the June summit with North Korea's Kim Jong-un, citing tremendous anger and hostility displayed in recent statements.

Data aside, the decision to cancel the June summit is something that will likely magnify political rhetoric (and threats of nuclear destruction) in the week's to come, something that is not likely to ease with a promise of another future sit-down between the two leaders (particularly given how easily and quickly this one fell apart).

Markets in the U.S. now look ahead to a greater flow of data to finish off the week on Friday, highlighted by durable goods orders and University of Michigan consumer sentiment releases. However, increased focus will likely be on any new developments with respect to North Korea, coupled with any pushback from proposed vehicle import tariffs from the Trump Administration.

Meanwhile, the S&P/ASX 200 index traded 0.36 percent higher at 6,036.5 by 03:50 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral 31.10 (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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