Australian bonds hold gains despite easing Sino-U.S. trade tensions; 10-year yield hovers near 18-month low

Australian government bonds held gains across the curve during Asian session Wednesday despite easing trade tensions between two economic behemoths. That pessimism was largely due to concerns about the possibility of a U.S. government shutdown and ongoing Brexit concerns weighed earlier in the session, keeping the benchmark 10-year yield at its lowest since June last year.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 1-1/2 basis points to 2.447 percent, the yield on the long-term 30-year bond also dipped 2-1/2 basis points to 2.978 percent and the yield on short-term 2-year down 1/2 basis point to 1.952 percent by 04:20GMT.

The St.George Bank said shifts in investor sentiment drove volatility in financial markets overnight. U.S. President Trump raised concerns about the possibility of a US government shutdown. He said he would be “proud to shut down the government for border security” referring to his efforts to secure funding from Congress ahead of the expiration of some government funding on 21st December,

“The U.S. government bond yields rose as hopes of a thawing in U.S.-China trade tensions dimmed the appeal of safe-haven U.S. government debt. The yield on 10-year US government bonds rose from 2.86 percent to 2.87 percent. The yield on the 2-year government bond rose from 2.73 percent to 2.76 percent,” noted St.George Bank.

On the other hand, the U.S. reported China had indicated it will cut tariffs on U.S. autos from 40 percent to 15 percent. Stocks initially climbed on news that China is planning to cut car tariffs for the U.S. and reports that Mnuchin and Liu discussed a timetable for trade talks.

“Australian dollar continues to chop around as headlines drive risk sentiment. Today’s data calendar is light, with U.S. CPI in focus. China-U.S. relations will also be in focus, with rumours the U.S. will issue new reports on China hacking and economic espionage. We continue to prefer to sell rallies,” noted economists at ANZ.

Meanwhile, the S&P/ASX 200 index traded 0.73 percent higher at 5,648.5 by 04:30 GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 132.63 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex