Australian bonds down for second straight day on firm crude prices

The Australian bond prices edged down, sending yields higher for 2nd straight day on Friday as investors cooled on safe-haven assets amid gains in riskier assets including stocks and oil. The yield on the benchmark 10-year Treasury note which moves inversely to its price, moved higher 1.15 pct to 2.637 pct and the yield on the 2-year Treasury bond ticked up 0.83 pct to 2.066 pct by 0455 GMT.

The Australian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Reserve Bank of Australia's target. Yesterday, Crude oil prices jumped to 5-month high as Energy Information Administration's (EIA) showed that crude stock rose lower than the market expectation last week. The crude inventories rose 2.1 million barrels, from prior build of +6.6 million barrels for the week ending 15 April. This came alongside a decreases seen in gasoline inventories of -0.1million barrel, from prior -4.2 million barrel and distillate inventories of -3.6 million barrel, as compared to a build of +0.5 million barrel seen prior. Moreover, Market speculation that Petroleum Exporting Countries (OPEC) and Russia will meet in Moscow next month to again strike a deal on oil output freeze, boosted crude oil investors confidence. But, Russian Energy Minister Alexander Novak denied about any such meeting happening in Russia in May.

On Sunday, the negotiations between Petroleum Exporting Countries (OPEC) and Russia failed to reach an agreement in the Doha round of talks to strike a deal on oil output freeze. The International benchmark for crude oil prices, Brent futures rose 1.17 pct to $45.05, while West Texas Intermediate crude oil jumped 1.32 pct to $43.75 by 0455 GMT.

“Global rates have continued to push higher in yield after breaking through recent ranges, with Australian bonds following that move and we expect the time of higher yields to continue this morning," said ANZ economists in a note.

On Friday 29 April the AOFM will tap AUD1.0 billion of the ACGB 5.75 pct May 2021 bond. This bond was last issued almost a year ago on 15 May 2015 and came at 2.456 pct with a bid/cover ratio of 3.15x. There is currently AUD22.3 billion of this bond outstanding and it is not a basket bond. Modified duration is 4.36 years. Carry and roll is 1.2bp per month. The bond trades at an EFP spread of 18.5bp and an asset swap spread of -15.2bp. DV01 is AUD522k. The AOFM has issued AUD71.8bn of nominal bonds, leaving AUD14.2bn of its program remaining before the end of the financial year on 30 June. Coupon payments paid on 21 April amounted to AUD3.56bn, according to ANZ daily report.

The investors will now look forward to next week’s FOMC meeting on Wednesday, 27th April and U.S Q1 GDP figure on Thursday, 28th April (1230 GMT).

Meanwhile, Australia's S&P/ASX 200 rose 0.03 pct to 5,236 by 0440 GMT, following the rally in oil prices.