Australian 10-year bond yield hits over 2-week high after RBA May minutes hint next move to be hike

Australian government bonds slumped across the board on Tuesday after the Reserve Bank of Australia (RBA) in its May meeting minutes said that the next move from the central bank will be a hike, instead of an interest rate cut. Also, better-than-expected China’s April industrial production data supported the bond yields.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, rose 4-1/2 basis points to 2.823 percent, the yield on the long-term 30-year Note jumped 3 basis points to 3.313 percent and the yield on short-term 2-year up 2 basis points to 2.027 percent by 03:30 GMT.

Minutes of the Reserve Bank of Australia May monetary policy meeting noted that Board members agreed there was not a strong case for near-term move in policy, given current circumstances, board agreed next move in rates likely to be up, rather than down. It said that March quarter inflation data was in-line with Bank's expectations and an appreciation in the AUD would slow expected acceleration in growth, inflation. The RBA remained optimistic on the labour market, said wages expected to pick up gradually as leading indicators pointed to more job gains.

In the United States, Treasuries were little changed to open the week on Monday during a relatively quiet session light on data of great significance with news flow largely limited to FOMC commentary from Cleveland Fed President Mester overnight, reiterating the likelihood of further rate hikes over the medium-term and St. Louis Fed President Bullard warning of possible yield curve inversion in late 2018 or early 2019 if the Fed continues to tighten further.

Markets now look ahead to a greater flow of data on Tuesday, highlighted by retail sales, Empire manufacturing, business inventories and TIC flows data, alongside afternoon commentary from San Francisco Fed President Williams.

Moreover, better-than-expected China’s industrial production data dragged down the bond prices across the curve as Australia is China's sixth largest trading partner; it is China's fifth-biggest supplier of imports and its tenth biggest customer for exports.

Meanwhile, the S&P/ASX 200 index traded 0.16 percent lower at 6,112.5 by 03:50 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 53.56 (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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