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Australian 10-year bond yield dips to 2-1/2 year low as global central banks adopt dovish stance; focus on Brexit uncertainty

Australian government bonds gained during Asian trading session Friday as investors moved towards safe-haven assets amid end of monetary-policy normalization by major global central banks. Market attention was largely focused on the ongoing Brexit developments.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, plunged about 4 basis points to 1.846 percent (lowest since August 2016), the yield on the long-term 30-year bond slumped 4-1/2 basis points to 2.493 percent and the yield on short-term 2-year traded 1-1/2 basis points lower at 1.502 percent by 04:30GMT.

On Wednesday, the Federal Open Market Committee (FOMC) voted unanimously today to keep the range for the fed funds rate between 2.25-2.50 percent. The median dots plot is now eyeing 2.4 percent in 2019, 2.6 percent by 2020 and 2.6 percent by 2021 respectively. This means the Fed now expects to raise borrowing costs only once more through 2021.

Furthermore, the committee made some decisions regarding its balance sheet (bottom chart). At present, the Fed is allowing a maximum of $30 billion of Treasury securities to roll off its balance sheet every month.

“Bond markets held onto most of their post-FOMC gains in what was a quieter session largely focused on Brexit uncertainty. In the US, as the Fed has provided its guidance, the data took a back seat,” ANZ noted.

“UK Prime Minister May is in Brussels, trying to agree an extension to the 29 March Brexit deadline. Sterling came under pressure. This week’s EU Summit is unlikely to be the final word. There could be an emergency EU Brexit Summit next week and the UK Parliament is likely to vote on the Withdrawal Agreement again. If the Agreement fails, Parliament is likely to seize control. That may mean a UK general election or second referendum.”

Meanwhile, the S&P/ASX 200 index traded -0.15 percent lower at 6,184.50 by 04:30 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 23.06 (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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