Australian bonds gain as Q3 GDP registers biggest quarterly decline since Q4 2008

The Australian government bonds gained Wednesday after recent data showed that the country’s third-quarter gross domestic product (GDP) declined for the first time since global financial crises.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell more than 1 basis points to 2.80 percent, the yield on 15-year note dipped 2 basis points to 3.26 percent and the yield on short-term 2-year slid 4 basis points to 1.83 percent by 04:30 GMT.

The third-quarter GDP fell 0.5 percent q/q, registering the first biggest decline since global financial crises, from up 0.6 percent q/q in the previous quarter. The market had expected GDP to rise 0.3 percent. Additionally, yearly data rose 1.8 percent, way lower than the market consensus of 2.2 percent y/y gain, from prior 3.3 percent.

Although the Australian economy contracted by 0.5% in the third quarter, this is very unlikely to be the start of a recession as GDP will most probably rebound in the fourth quarter. Nonetheless, this is only the fourth fall in GDP in 25 years, which highlights that the economic backdrop is not consistent with a big rise in underlying inflation, said Capital Economics in its research note.

Moreover, the Reserve Bank of Australia in its last monetary policy statement for 2016 left its benchmark interest rate steady at 1.50 percent after cutting twice in May and August. Also, the central bank in its monetary policy statement noted that steady policy rate is consistent with economic growth, inflation targets and global economy growing at lower than average pace.

Further, the central bank noted that the world’s second largest economy has steadied and economic conditions in China supported by growth in infrastructure and property construction but medium-term risks remain. Also, mentioned that home prices rising briskly in some markets and global outlook for inflation more balanced than "for some time".

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.26 percent higher at 5,476.50 by 04:50 GMT. While at 04:00 GMT, the FxWirePro's Hourly Australian Dollar Strength Index stood neutral at -10.01 (lower than -75 represents bearish trend).