Australian bonds gain on weak risk appetite; investors wary ahead of Q3 CPI data

The Australian government bonds gained Monday as investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil.

Also, bond prices moved higher as investors remained cautious ahead of the third-quarter consumer inflation data, in an attempt to estimate the RBA's most likely policy step.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell nearly 3 basis points to 2.277 percent, the yield on 15-year note dipped 2-1/2 basis points to 2.643 percent and the yield on 5-year slid 1 basis point to 1.943 percent by 04:40 GMT.

The Australian government publishes official Consumer Price Inflation (CPI) data every quarter, and third-quarter consumer price index (CPI) data is due for release on Wednesday, October 26th. Inflation is a key consideration when it comes to the outlook for Reserve Bank of Australia's (RBA) monetary policy.

We foresee that the trimmed mean to have risen by 0.3 percent q/q and the weighted median by 0.4 percent q/q. This would see the average of the two underlying measures rise by 0.4 percent q/q and be steady at 1.5 percent y/y.

According to latest Reuters poll on the Australian economy, forecasts for inflation was at 1.2 percent for 2016, 2.1 percent in 2017 and 2.4 percent in 2018. Similarly, forecasts for GDP was at 2.9 percent for 2016 (also a poll in July showed the same result), 2.8 percent for 2017 and 2.9 percent in 2018.

Moreover, 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.

Crude oil prices fell as Iraq commented it wanted to be exempt from any agreement by the OPEC to cut production to prop up the market, and as U.S. drillers stepped up work. The International benchmark Brent futures fell 0.46 percent to $51.54 and West Texas Intermediate (WTI) dipped 0.49 percent to $50.60 by 04:50 GMT.

Last week, Australia September employment change fell unexpectedly by -9.8K (registered a second straight month of declines), markets expectation was for 15K increase, following the previous decline of 3.9K in August.

Additionally, full-time employment dipped 53K in September, the biggest drop since April 2011; part-time employment advanced 43K. On the other hand, the unemployment rate remained steady at 5.6 percent, beating market consensus of 5.7 percent, from 5.6 percent in August.

In addition, RBA Governor Lowe said last week that recent data suggest that the economy is adjusting reasonably well and he is watching employment and stability of financial system when setting rates and added that when judging if inflation is too low, there is need to consider the public interest.

Further, he said that inflation expectations have declined, but not at unprecedented lows; there is a need to guard against inflation expectations falling too far and Q3 CPI will be an important update. Added that labour market is mixed, jobless rate down but underemployment high and wages weak.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.47 percent lower at 5,378.5 by 04:50 GMT.