Australian bonds plunge tracking U.S. Treasuries, better-than-expected Q2 GDP

Australian bonds plunged during Asian session Wednesday, tracking a similar movement in the United States Treasuries, after yields of the latter surged to a 3-week high in the overnight session, after the U.S. manufacturing activity expanded to over 14-year high during the month of August, and on heavy corporate debt supply.

Also, Australia’s gross domestic product (GDP) for the second quarter of this year came in better than market expectations, further extending pressure on bond prices.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, jumped 4-1/2 basis points to 2.571 percent, the yield on the long-term 30-year bond surged 4 basis points to 3.077 percent and the yield on short-term 2-year traded 3 basis points higher at 2.019 percent by 03:30GMT.

The U.S. Institute for Supply Management (ISM) said its index of national factory activity jumped to 61.3 last month, the best reading since May 2004 and up from 58.1 in July, Reuters reported.

Further, Australia’s Q2 GDP rose 0.9 percent q/q and 3.4 percent y/y in Q2, much stronger than expectations, capping off a very strong first half where annualised growth was a robust 4.1 percent. The strength was concentrated in housing construction, mining investment and public consumption, while household spending rose a moderate 0.7 percent q/q, ANZ Research reported.

"The strength of the GDP report vindicates the RBA’s upbeat messaging around the economy and the stronger starting point suggests that the Bank is likely to remain positive about the outlook," the report commented.

Meanwhile, the S&P/ASX 200 index traded 0.60 percent lower at 6,222.5 by 03:40GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 35.70 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex