Australian bonds down ahead of uncertainty over Brexit and Fed, BOJ policy meets

The Australian bonds traded modestly lower on Friday as investors remain uncertain about the global economic outlook and the near term path of BoJ and US interest rates. Also, UK decision on whether to remain in the European Union on June 23 is also weighing on investors’ minds.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price rose more than ½ basis points to 2.118 percent, super-long 15-year bonds yield climbed 1 basis point to 2.355 percent and the yield on short-term 2-year bond jumped more than 1-1/2 basis points to 1.673 percent by 05:25 GMT.

On Thursday, the yield on the benchmark 10-year US Treasury note fell near to 3 basis points to 1.678 percent mark for the first time since February. The German 10-year bund yields fell to a new record low of 0.034 percent, after testing its 2015 low of 0.05 percent and it likely to test zero next week.

"Low inflation and low economic growth around the world, combined with highly accommodative central bank policies are keeping interest rate structures in advanced economies at record lows," the St George economists said in a note.

This week, the Reserve Bank of Australia (RBA) maintained its key interest rate at a record low of 1.75%, as expected. Governor Stevens in his monetary policy statement concluded that the Australian economy continued to grow, but at a lower than average pace. He added that unchanged policy is consistent with CPI returning to target band and global economy is also growing at lower than average pace. Said dwelling prices have begun to rise again recently and he sees inflation remaining quite low for some time. He further mentioned that several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. He said China's growth rate has continued to moderate, though recent actions by Chinese policymakers are supporting the near-term outlook.

We foresee that the CB is unlikely to ease while keeping the cash rate at its all-time low of 1.75% until it gets another read on inflation in late July.

Markets will remain keen to focus on next week’s unemployment rate on Friday at 01:30 GMT. Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading down 0.59 percent, or 31.5 points, at 5,309.5 by 05:25 GMT.