Australian bonds gain along with U.S. Treasuries amid equities sell-off; October employment report eyed

Australian government bonds gained across the curve during Asian session on Monday as investors moved to safe-haven buying due to global equities sell-off on China’s economic growth worries and worry of further escalation of Sino-U.S. trade war.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 3 basis points to 2.744 percent, the yield on the long-term 30-year bond also dipped 3 basis points to 3.250 percent and the yield on short-term 2-year down 1-1/2 basis points to 2.086 percent by 03:50GMT.

Risk appetites deteriorated on Friday night amid soft U.S. corporate earnings and weak economic data in China. The U.S. stock market and bond yields fell, while the US dollar gained ground.

“Stock market losses boosted the safe haven appeal of government bonds, pushing yields lower. The yield on the U.S. government 10-year bond fell from 3.24-3.18 percent. The yield on the 2-year U.S. government bond fell from 2.97-2.92 percent,” noted economists at St.George Bank.

In the latest China’s central bank third quarter monetary policy report, the PBoC said inflation and liquidity trap are not likely to be the key constraints to China’s monetary policy over the quarters. Therefore, we foresee that the Chinese’s central bank would continue to ease its policy via targeted RRR cut to support the sagging economic growth.

On the other hand, the Reserve Bank of Australia (RBA) in its November Statement on Monetary Policy (SoMP), released on Friday, said given the expected gradual nature of that progress, the Board does not see a strong case to adjust the cash rate in the near term. The Reserve Bank Board has maintained the cash rate at 1.50 percent since August 2016. This stimulatory setting of monetary policy has supported the economy and resulted in progress toward full employment. Inflation has also increased over the past couple of years, although it is currently slightly below the target range.

“Ahead of a long weekend in the U.S., offshore markets were orderly and confined to tight ranges. We expect a quiet session today with the U.S. market closed. Domestic wages data and U.S. supply pose a risk to higher front-end yields,” noted economists at ANZ.

Meanwhile, the S&P/ASX 200 index traded 0.68 percent higher at 5,922.5 by 04:00 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -3.62 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex