Australian 10-year bond yields tumble to 2-week low even as RBA maintains OCR at record-low of 1.50 pct

The Australian 10-year government bond yields tumbled to 2-week low Tuesday despite the Reserve Bank of Australia (RBA) maintaining its official cash rate (OCR) at its record-low of 1.50 percent, citing improved global macroeconomic conditions at the first monetary policy meeting of 2017 held today.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, tumbled 7-1/2 basis points to 2.70 percent, the yield on 15-year note also slumped nearly 8 basis points to 3.16 percent and the yield on short-term 2-year fell nearly 3 basis points to 1.81 percent by 03:50 GMT.

The decision came as absolutely no surprise, with all 73 economists surveyed by Reuters expecting the cash rate to stay at the current record-low level for some time. Further, Governor Philip Lowe remained optimistic over the country’s housing market, adding that conditions have strengthened further and prices are rising briskly.

However, ANZ-Roy Morgan consumer confidence fell slightly by 0.5 percent to 117.5 in the week ending February 5, partially unwinding last week’s 0.9 percent rise. A solid rise in the future economic outlook was entirely offset by a drop in the current finances and 'now is a good time to buy a household item' sub-indices.

There is increasing note of evidence that Australia is at a positive transition point for nominal growth, inflation and wages. Also, the unemployment rate has remained unchanged for nine consecutive months (trend basis) and the improvement in Q4 full-time employment will alleviate RBA’s concern.

If downside tail risks continue to subside and broader momentum improves as expected, RBA's next policy move will be 25 basis points hike in the first-quarter of 2018.

Lastly, there are two other RBA events this week that will provide further direction in the debt market. RBA Governor Lowe is s to deliver his first speech for 2017 at an economics dinner in Sydney on February 9, while the CB will release its latest quarterly Statement on Monetary Policy (SoMP) the next day, which should give a clearer indication of the outlook for interest rate movements this year.

Meawhile, the ASX 200 index traded 0.02 percent lower at 5,558.50 at 04:00GMT, and at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 107.36 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex