The Australian government bonds plunged Thursday as stronger-than-expected third quarter consumer price index has lowered the possibilities of a rate cut by the Reserve Bank of Australia in the upcoming monetary policy meeting in November. Also, sell-off in Treasuries was followed by the recovery in the crude oil prices.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose nearly 7 basis points to 2.343 percent, the yield on 15-year note jumped 6-1/2 basis points to 2.699 percent and the yield on short-term 2-year climbed 1-1/2 basis point to 1.717 percent by 04:20 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 recovered in the Asian session from the previous losses on fresh buying. The International benchmark Brent futures rose 0.16 percent to $50.06 and West Texas Intermediate (WTI) jumped 0.16 percent to $49.26 by 04:30 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 1.10 percent lower at 5,280.5 by 04:30 GMT.
