Australian bonds mixed amid stronger Q3 CPI numbers, energy prices fall on supply glut

The Australian government bonds traded mixed Wednesday after recent data showed that the country’s third-quarter consumer inflation climbed more than the overall market expectations, reducing possibilities for a further easing from the Reserve Bank of Australia.

On the other hand, investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 2 basis points to 2.267 percent, the yield on 15-year note dipped 3 basis points to 2.623 percent and the yield on short-term 2-year jumped 2 basis point to 1.693 percent by 04:30 GMT.

Australia’s third-quarter consumer inflation index (CPI) rose 0.7 percent q/q, beating market expectations of 0.5 percent q/q, from 0.4 percent in the second quarter of 2016. On an annual basis, it climbed 1.3 percent y/y, trended higher than the market consensus of 1.1 percent y/y, up from prior 1 percent (a 17-year low). After reading stronger CPI numbers we expect the central bank to keep policy rate on hold next week.

Moreover, the Australian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which is still below the Reserve Bank of Australia's target. Crude oil prices fell more than a percent following a jump in U.S. crude inventories and rising prospects that a production cut deal proposed by the OPEC could sour as its members continue to squabble. The International benchmark Brent futures fell 1.18 percent to $50.19 and West Texas Intermediate (WTI) dipped 1.30 percent to $49.31 by 04:50 GMT.

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.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 1.35 percent lower at 5,338.5 by 04:40 GMT.