Australian bonds plunge on solid US data; focus on RBA July meeting minutes

The Australian government bonds plunged Monday, following US trend, after reading stronger-than-expected retail sales data for June, coupled with maintained improvement in consumer inflation.

Also, investors await the minutes from the Reserve Bank of Australia’ July policy meeting, which is scheduled for Tuesday at 01:30 GMT, in an attempt to estimate the central bank's most likely step.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose nearly 3 basis points to 2.005 percent and the yield on short-term 2-year note hovered around 1.640 percent by 05:20 GMT.

The consumer price index rose 0.2 percent m/m in June, below expectations for a +0.3 percent m/m result, as compared to the unrevised +0.2 percent m/m in May. On an annual basis, it increased 1 percent y/y, marginally lower than the 1.1 percent y/y consensus, versus the unrevised +1.0 percent y/y result that occurred in May. Similarly, the retail sales jumped 0.6 percent m/m in June, above market expectations for a +0.1 percent m/m reading, as compared to the revised +0.2 percent m/m reading that occurred in May (previous was +0.5 percent).

The recent NBA survey of business conditions conducted last week showed that that the business sentiments is on the verge of improvement, which shall reduce any near policy easing for a while.

Lastly, investors will remain keen to focus on the second quarter consumer inflation data, which is scheduled for July 27 at 01:30 GMT. We foresee that if inflation fails to improve, the central bank is expected to repeat its May decision when the RBA lowered the cash rate by 25 basis points to 1.75 percent due to inflationary pressures.

Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading up 0.80 percent, or 43 points, at 5,419.5 by 05:30 GMT.