Australian bonds continue gains following decline in energy prices, higher equities limit upside

The Australian government bonds continued to witness gains Wednesday, following decline in energy prices amid a silent trading session that witnessed data of little economic significance. However, higher equities limited the stark upside in bonds.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, tumbled 1 basis point to 2.70 percent, the yield on 15-year note also fell slightly over 1 basis point to 3.15 percent and the yield on short-term 2-year too fell 1 basis point to 1.80 percent by 04:20 GMT.

The Australian bonds have been closely following developments in oil markets because of their impact on inflation expectations. The International benchmark Brent futures moved lower 0.73 percent to USD54.65 and West Texas Intermediate (WTI) fell 0.78 percent to USD54.62 by 04:30 GMT.

In contrast, the Reserve Bank of Australia (RBA) maintained its benchmark interest rate at the current record-low level of 1.50 percent at its first monetary policy meeting of 2017, held Tuesday, as was widely anticipated by market participants, while remaining more upbeat on the global economic conditions.

On the domestic front, the outlook was largely unchanged. The bank still expects GDP growth to return to 'around 3 percent over the next couple of years', with the weakness in Q3 GDP 'largely reflecting temporary factors'.

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 0.48 percent higher at 5,600.50 at 04:40GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -32.08 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex