Australian bonds sag on Yellen’s hawkish comments, 10-year yields hit 2-week high

The Australian government bonds sunk Thursday, following overnight hawkish comments from the Federal Reserve Chair Janet Yellen, with the 10-year benchmark yields hitting 2-week high. However, investors remained unnerved by the negative Australian December 2016 Labor market report released early today.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, jumped 8-1/2 basis points to 2.76 percent, the yield on 15-year note bounced nearly 10 basis points to 3.21 percent and the yield on short-term 2-year moved higher nearly 4 basis points to 1.89 percent by 05:00 GMT.

Fed Chair Yellen delivered hawkish comments on Wednesday, adding that the economy is approaching the Fed's dual mandate of inflation and employment. She further mentioned that the US is near full employment and with inflation figures stabilizing, there is a need for gradual Fed tightening, although she did not mention the exact timing of an interest rate hike.

In contrast, according to reports from the Australian Bureau of Statistics, the employment change fell to 13.5k, better than what markets had initially anticipated but down from 37.1k in November. In line with his, unemployment rate slightly rose to 5.8 percent, from 5.7 percent in November.

Moreover, the United States consumer price inflation increased from 1.7 percent y/y in November 2016 to 2.1 percent y/y in December 2016, back into the Fed’s 2-2.5 percent inflation target for the first time since June 2014.

Meanwhile, the ASX200 index remained flat at 5,636.50 percent tracking at 05:15GMT, while at 5:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 66.46 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex