Australian bonds sag on stronger business confidence

The Australian government bonds slumped on Tuesday after data showed that business confidence has rebounded back to the strong levels seen in April.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price rose nearly 5 basis points to 1.963 percent and the yield on short-term 2-year note also jumped nearly 4 basis points to 1.655 percent by 05:30 GMT.

The Australia’s Roy Morgan weekly business confidence surged in June, up 6.8 percent to 119.5 prior to the Federal election. The large rise in business confidence in June was likely more tied to the perception in the closing weeks of the Federal Election campaign that the Coalition would retain Government with a narrow victory, which turned out to be correct despite a week of uncertainty following the Federal Election. The increased level of Roy Morgan business confidence in June is now back above the 5-year average of 116.7.

Similarly, Australia NAB Business conditions rose to 12 in June, from prior 10 in May and confidence jumped to 6, from previous 3 in May.

In addition, the Reserve Bank of Australia, Luci Ellis, Head of Financial Stability Department said that she does not expect a much overall impact on Australian banks from sovereign downgrade. Said downgrades for AAA rated countries tend not to have much impact as markets would have already priced in the risk and added that she is more comfortable with where lending standards are now.

Lastly, investors will remain keen to focus on the unemployment data due on July 14. Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading down 0.08 percent, or 4 points, at 5,324.5 by 05:30 GMT.