Australian bonds gain on safe-haven demand amid Trump's trade confusion

Australian bonds gained on Wednesday on the back of safe-haven demand amid rising tensions of a trade war between the White House and other major economies, leaving the market in a holding pattern for now.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 1 basis point to 2.643 percent, the yield on the long-term 30-year Note dipped 2 basis points to 3.125 percent and the yield on short-term 2-year down 1/2 basis point to 2.030 percent by 03:00 GMT.

In the United States, Treasuries were little changed during a relatively quiet Tuesday session as markets basked in some amount of calm on the trade war front following the rough start to the week. With respect to data, markets saw downward pressure in Conference Board consumer confidence (though remaining well within supportive territory), alongside mild downward pressure in the S&P CoreLogic Case-Shiller composite-20 home price index (increasing +6.56 percent y/y in April, from +6.73 percent y/y in March).

With respect to the FOMC, markets received commentary from Atlanta Fed President Bostic and Dallas Fed President Kaplan, both of which highlighted lightering concerns with respect to trade policy. More than possibly anything else, we expect uncertainty with respect to trade as something that may force the Fed to tread with more caution about the current pace of forecasted rate hikes (with the balance of forecasts still looking for another 50bps in 2018). Markets now look ahead to durable goods orders, pending home sales, wholesale inventories and international trade in goods data, followed by a 5-year Note auction later in the session.

Bonds markets witnessed heavy buying after the world’s second-largest economy, China announced that it would retaliate against new US tariffs on USD50 billion in Chinese imports that will go into effect within days, taking the world’s two largest economies to the brink of a full-scale trade war. U.S. President Donald Trump threatened last week to impose a 10 percent tariff on $200 billion of Chinese goods, escalating a tit-for-tat trade war with Beijing.

Meanwhile, the S&P/ASX 200 index traded 0.08 percent higher at 6,141.5 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -51.32 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex