Australian bonds narrowly mixed in thin trade; next week’s inflation data eyed

The Australian government bonds traded narrowly mixed on Thursday, succumbing to thin trading activity during a relatively quiet session that saw little data of much significance. Also, investors will be keeping a close eye on the upcoming inflation data next week, in an attempt to estimate the RBA's most likely step.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 1/2 basis point to 1.929 percent, the yield on short-term 15-year note climbed more than ½ basis points to 2.118 percent and the yield on short-term 2-year note also dipped 2 basis points to 1.540 percent by 05:00 GMT.

On Tuesday, the RBA in its July meeting minutes (when rates were left unchanged) mentioned that the officials are waiting for further information on upcoming economic data and updated economic outlook before deciding on policy decision in August.

The central bank reiterated that rising AUD would complicate economic re-balancing and suggested Australian economy grew at a moderate pace in the second quarter of 2016. They further added that inflation is expected to remain quite low for some time given subdued wages, cost pressures and the measures of inflation expectations remained below average.

The liaison suggested retail sales picked up in June, but price discounting is still continuing and the recent labour data remained mixed, leading indicators still pointed to jobs growth. Liaison also pointed to growth in non-mining business investment. Lastly, the RBA judged uncertainty caused by Brexit to have only a modest impact on global growth.

Moreover, bond traders are pricing a 25 basis points rate cut from the central bank to around 60 percent probability after reading dovish July meeting minutes.

In addition, according to a monthly gauge of business conditions and confidence published by the National Australia Bank, second-quarter business conditions came in at 11, up one point from the first quarter and well above its long-run average. For confidence, that is in at +2, down 2 points.

Also, the report showed that capex plans were up one point to 25 in the second quarter of 2016. This monthly survey is comprised of more than 900 firms. The report further mentions that firms still have little pricing power, growth in retail and final product prices at very low levels, reported forexlive.

Lastly, investors will remain keen to focus on the Q2 CPI data, which is scheduled to take place on July 27 at 01:30 GMT. Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading down 0.04 percent, or 2 points, at 5,465 by 05:10 GMT.