Australian bonds rally after US payroll shocks global markets

The Australian government bonds rallied on Monday as investors poured into safe-haven assets after U.S. payrolls grew at the slowest pace in almost six years, which dampened prospects for a rate increase by the Federal Reserve in the near term. The yield on the benchmark 10-year Treasury note which moves inversely to its price fell to all-time low by 8 basis points to 2.161 percent and  short-term 2-year bonds yield dipped 5-1/2 basis point to 1.603 percent by 05:15 GMT.

The May Labor Department employment situation report revealed overall only +38k increase in non-farm payrolls, well below market expectations for a +160k increase, as compared to the revised +123k reading in April (previous was +160k). This comes alongside a considerable decrease in the unemployment rate to 4.7 percent, below expectations for a 4.9 percent result, down from 5.0 percent. Average hourly earnings increased +0.2 percent m/m, from revised +0.4 percent m/m reading seen in April, previous was +0.3 percent m/m.

Additionally, average weekly hours held unchanged at 34.4 in May. Overall, weaker net revisions were seen in March and April (net -59k revisions).

“Yields have dropped sharply in global rates markets after the release of weak US jobs figures on Friday indicating growth in the world's largest economy is fragile,” the ANZ economists said in a note.

"Australian markets followed the move and should continue the move today," they added.

In addition, the Reserve Bank of Australia is expected to keep rates unchanged at its official monetary policy meeting scheduled to be held on Tuesday, June 7 at 4:30 GMT. The central bank had already eased policy stance by 25 bps in its meeting in April, leaving the official cash rate at its record low of 1.75 percent. According to a recent poll of 50 economists by Reuters, 49 expect the RBA to stay pat, while foreseeing a rate cut in September. For more details please see - http://www.econotimes.com/RBA-likely-to-stay-on-hold-Tue-as-positive-economic-data-boosts-sentiments-217574

Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading up 0.76 percent, or 40.5 points, at 5,363.5 by 05:15 GMT.