Australian bonds nearly flat ahead of Q3 CPI data

The Australian government bonds traded nearly flat Tuesday as investors await 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, remained steady at 2.277 percent, the yield on 15-year note hovered around 2.63 percent mark and the yield on short-term 2-year slid 1 basis point to 1.672 percent by 04:30 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, 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.

Also 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 0.43 percent higher at 5,416.5 by 04:40 GMT.