Australian bond yields recover as commodity prices rebound in July; SMP in focus

The Australian government bond yields recovered on Wednesday after data released by the Reserve Bank of Australia showed that the country’s commodity price index rebounded in July. Also, investors awaited the statement of monetary policy (SMP) from the central bank, which is scheduled to be released on Friday at 01:30 GMT.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped 11 basis points to 1.936 percent and the yield on short-term 2-year note climbed 4-1/2 basis points to 1.488 percent by 05:20 GMT.

The central bank has released its commodity price index for July, which showed a stronger growth of 4.1 percent in special drawing rights (SDR) terms. Also, it increased 1.1 percent in Australian dollar terms. The increase was led by the prices of the bulk commodities, LNG and gold. Both the base metals and rural sub-indices increased in the month. In Australian dollar terms, the index rose by 1.1 percent in July.

Over the past year, the index has fallen by 2.0 per cent in SDR terms and by 3.7 per cent in Australian dollar terms. Consistent with previous releases, preliminary estimates for iron ore, coking coal, thermal coal and LNG export prices are being used for the most recent months, based on market information. Using spot prices for the bulk commodities, the index rose by 8.3 per cent in July in SDR terms, to be 3.5 per cent higher over the past year, the RBA reported in its press release.

On Tuesday, the Reserve Bank of Australia (RBA) lowered its official cash rate (OCR) by 25 basis points to new record low of 1.50 percent, after having cut it by 25 basis points in May to 1.75 percent to spark historically weak inflation. This decision was made by the central bank to desperately try to recover the dwindling consumer inflation, which is below the Reserve Bank of Australia’s (RBA) target band of 2-3 percent. Also, strengthening Australian dollar pushed the central bank of a 25 basis points cut.

Meanwhile, the Australia's benchmark S&P/ASX 200 index traded down 0.80 percent or 42.5 points to 5,424.5 at 05:30 GMT.